Harsco Corporation Reports Second Quarter 2019 Results


  • Completed Two Milestone Transactions to Accelerate Portfolio Transformation to Leading Global Environmental Solutions Provider; Acquisition of Clean Earth (June 28) and Divestiture of Air-X-Changers (July 1)

  • Completed Successful $500 Million, 8-Year Senior Unsecured Notes Offering, While Increasing and Extending the Company's Revolving Credit Facility; Company's Proforma Leverage Ratio Totaled 2.2x at Quarter-End After Adjusting for Air-X-Changers Sale

  • Q2 GAAP Operating Income Totaled $18 Million and GAAP Diluted Loss per Share From Continuing Operations of $0.04 Including Unusual Items and After Reclassification of Harsco Industrial as Discontinued Operations

  • Operating Income and Diluted Earnings per Share Excluding Unusual Items and Including Harsco Industrial Totaled $53 Million and $0.37; Compared with Prior Guidance of $53 Million to $58 Million and $0.35 to $0.40, Respectively

  • 2019 Adjusted Operating Income Now Expected to be Between $215 Million to $225 Million; Excluding Remaining Industrial Business Earnings in H2 2019 and Acquisition-Related Amortization Expense

CAMP HILL, Pa., July 31, 2019 (GLOBE NEWSWIRE) -- Harsco Corporation (NYSE: HSC) today reported second quarter 2019 results. On a U.S. GAAP ("GAAP") basis, second quarter of 2019 diluted loss per share from continuing operations was $0.04, including transaction costs and other unusual items and after the reclassification of Harsco Industrial as Discontinued Operations. The unusual items included expenses to execute two strategic transactions and capital market financings, a bad debt provision related to a Harsco Environmental customer in the U.K. that entered into administration, costs to implement Harsco Rail's productivity improvement initiative and a non-cash accounting adjustment to a contingent consideration liability. This figure compares with second quarter of 2018 GAAP diluted earnings per share from continuing operations of $0.37. Excluding unusual items, diluted earnings per share from continuing operations were $0.21 in second quarter of 2019 and $0.25 in the second quarter of 2018.

GAAP operating income from continuing operations for the second quarter of 2019 was $18 million. Excluding unusual items and including Harsco Industrial results for the quarter, operating income was $53 million, compared to the Company's previously provided guidance range of $53 million to $58 million. Clean Earth will be incorporated in Harsco results beginning in the third quarter.

“In recent months we took a number of significant strategic actions to position Harsco for growth and value creation, while also delivering second quarter results within our guidance range,” said Chairman and CEO Nick Grasberger. “We announced and closed two strategic transactions, completed a successful financing and launched the rebranded Environmental segment, consistent with our strategy to position Harsco as a global environmental solutions industry leader.”

Mr. Grasberger continued, “Harsco Rail delivered strong performance in the quarter. While a challenging operating environment impacted Environmental’s performance, we expect the segment’s business performance to improve in the second half, with results supported by our ongoing growth investments and focus on improvement initiatives. We will also benefit in the second half from a robust outlook for Clean Earth. With Harsco now focused on less cyclical and higher-growth businesses, we are well positioned to continue our strategic investments while continuing to create value for our customers and shareholders.”

Harsco Corporation—Selected Second Quarter Results

($ in millions, except per share amounts) Q2 2019 Q2 2018
Revenues $351  $340 
Operating income from continuing operations - GAAP $18  $38 
Operating margin from continuing operations - GAAP 5.1% 11.2%
Diluted EPS from continuing operations - GAAP $(0.04) $0.37 
Return on invested capital (TTM) - excluding unusual items and including discontinued operations 14.9% 13.8%
Note: Income statement details above and commentary below reflect that Harsco Industrial has been reclassified as Discontinued Operations starting in Q2 2019.

Consolidated Second Quarter Operating Results

Total revenues from continuing operations were $351 million, an increase of 3 percent compared with the prior-year quarter as a result of higher revenues in the Company's Rail segment. Revenues within the Company's Environmental segment, net of foreign currency impacts, were comparable to the prior-year quarter.  Foreign currency translation negatively impacted second quarter 2019 revenues by approximately $10 million compared with the prior-year period.

GAAP operating income from continuing operations was $18 million, or $33 million when excluding unusual items, for the second quarter of 2019. These figures compare with GAAP operating income from continuing operations of $38 million and adjusted operating income of $36 million in the same quarter of last year. At the segment level, adjusted operating income in Rail improved relative to the prior-year quarter, while adjusted operating income declined in Environmental.

The Company's GAAP and adjusted operating margins in the second quarter of 2019 were 5.1 percent and 9.4 percent, respectively.

Second Quarter Business Review

Environmental

($ in millions) Q2 2019 Q2 2018 %Change
Revenues $269  $272  (1)%
Operating income - GAAP $28  $36  (23)%
Operating margin - GAAP 10.2% 13.1%  

Revenues totaled $269 million, a slight decrease from the prior-year quarter due to the impact of foreign currency translation. The segment's operating income in the second quarter of 2019 totaled $28 million, or $29 million when excluding unusual items in the period. These figures compare with GAAP operating income of $36 million and adjusted operating income of $33 million in the prior-year period. The change in adjusted operating earnings is attributable to the impact of foreign exchange translation and prior site exits as well as lower contributions from certain Applied Products businesses, partially due to lower commodity prices and steel output in North America. Lastly, the segment's operating margin was 10.2 percent and adjusted operating margin was 10.8 percent in the second quarter of 2019.

Rail

($ in millions) Q2 2019 Q2 2018 %Change
Revenues $81.6  $67.6  21%
Operating income - GAAP $9.4  $8.6  10%
Operating margin - GAAP 11.6% 12.8%  

Revenues increased 21 percent to $82 million, due to improved demand for original equipment from North American customers and higher after-market parts sales. The segment's operating income in the second quarter of 2019 totaled $9 million, or $11 million when excluding unusual items in the period. These figures compare with GAAP and adjusted operating income of $9 million in the prior-year quarter. The 23 percent improvement in adjusted operating income relative to the prior-year quarter is attributable to the above factors and a more favorable product-sales mix, partially offset by higher SG&A and engineering expenses. As a result, the segment's operating margin was 11.6 percent in the second quarter of 2019 (13.0 percent on adjusted basis), compared with 12.8 percent in the same quarter of 2018.

Cash Flow

Net cash used by operating activities totaled $9 million in the second quarter of 2019, compared with net cash provided by operating activities of $55 million in the prior-year period. Further, free cash flow was $(45) million (before transaction expenses) in the second quarter of 2019, compared with $28 million in the prior-year period. The change in free cash flow compared with the prior-year quarter is principally attributable to growth-related capital spending and working capital.

2019 Outlook

The Company’s full year outlook now incorporates Clean Earth for the second-half of the year and includes Harsco Industrial for only the first-half of 2019. As a result, the outlook ranges provided below should be considered in the context that the earnings of the remaining Industrial businesses (IKG and Patterson-Kelley) are not included for H2 2019. Also, certain guidance metrics presented below have changed from prior presentations. Adjusted operating income is now presented prior to acquisition-related amortization expenses, for example, and will be presented this way starting in Q3.

First, Clean Earth is expected to generate revenues of approximately $160 million in second-half of 2019. In addition, the segment's adjusted operating income for this period is anticipated to range from $32 million to $35 million, which largely offsets the impact of excluding the Industrial segment in H2. Also, this Clean Earth range contemplates meaningful year-on-year growth, which can be mainly attributed to positive underlying market trends, 2018 acquisitions, new waste-streams and facilities, and lower operating costs.

The Company’s outlook for Harsco Environmental is lowered modestly from prior guidance, to reflect lower service levels linked to global steel output and Applied Product contributions as well as slower start-up of certain projects. As a result, the segment’s 2019 adjusted operating income is expected to increase less than previously forecasted year-on-year.

Rail’s outlook remains strong and unchanged from prior guidance. For the year, Rail's adjusted operating income is anticipated to be significantly higher than 2018 due to increased global demand for equipment, after-market parts and Protran Technology products as well as productivity initiatives. These benefits are expected to be only partially offset by lower contracting contributions, a less favorable product mix as well as R&D and administrative investments (costs) to support the segment's multi-year growth strategy.

Lastly, Corporate spending is expected to range from $24 million to $25 million for 2019.

Key consolidated highlights in the Outlook for full-year 2019 and Q3 2019 are as follows:

2019 Full Year Outlook  
 2019 Outlook2019 Prior2018 Actual
(as previously reported)

Operating Income
$181 - $191m$192 - 207m$191m
Adjusted Operating Income before
Acquisition Amortization
$215 - 225m$216 - 231m$194m

Diluted Earnings Per Share
$0.89 - 1.02$1.15 - 1.33$1.64
Adjusted Diluted Earnings Per Share
(before Acquisition Amortization)
$1.38 - 1.51$1.44 - 1.61$1.40

Free Cash Flow Before Growth Capital
$125 - 135m$135 - 150m$104m

Free Cash Flow
$55 - 65m$55 - 70m$73m

Adjusted Return on Invested Capital
14.0 - 15.0%16.0 - 17.0%16.2%

Net Interest Expense
$43 - 44m  

Non-Operating Defined Benefit Pension Expense
$6m  

Effective Tax Rate, Excluding Any Unusual Items
25 - 27%  
Note: Restated 2018 financial information to reflect Harsco Industrial as Discontinued Operations is included in the supporting schedules.


Q3 2019 Outlook  
 Q3 2019Q3 2018
(as previously
reported)

Operating Income
$50 - 55m$57m
Adjusted Operating Income before
Acquisition Amortization
$56 - 61m$60m

Diluted Earnings Per Share
$0.24 - 0.30$0.40
Adjusted Diluted Earnings Per Share
(before Acquisition Amortization)
$0.35 - 0.41$0.42
Note: Restated 2018 financial information to reflect Harsco Industrial as Discontinued Operations is included in the supporting schedules.


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 60531313. 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 August 14, 2019 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 and amounts; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) the Company's inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates; (7) failure to effectively prevent, detect or recover from breaches in the Company's cybersecurity infrastructure; (8) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (9) disruptions associated with labor disputes and increased operating costs associated with union organization; (10) the seasonal nature of the Company's business; (11) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all; (12) the integration of the Company's strategic acquisitions, including the acquisition of CEHI Acquisition Corporation and Subsidiaries ("Clean Earth"); (13) potential severe volatility in the capital markets; (14) failure to retain key management and employees of Clean Earth; (15) the amount and timing of repurchases of the Company's common stock, if any; (16) the outcome of any disputes with customers, contractors and subcontractors; (17) the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability; (18) implementation of environmental remediation matters; (19) risk and uncertainty associated with intangible assets; and (20) other risk factors listed from time to time in the Company's SEC reports.  A further discussion of these, along with other potential risk factors, can be found in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.  The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict.  Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.  The Company undertakes no duty to update forward-looking statements except as may be required by law.

About Harsco
Harsco Corporation is a global market leader providing environmental solutions for industrial and specialty waste streams, and innovative technologies for the rail and energy sectors. Based in Camp Hill, PA, the 11,000-employee company operates in more than 30 countries. Harsco’s common stock is a component of the S&P SmallCap 600 Index and the Russell 2000 Index. Additional information can be found at www.harsco.com.

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


HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

     
  Three Months Ended Six Months Ended 
  June 30 June 30 
(In thousands, except per share amounts) 2019 2018 2019 2018 
Revenues from continuing operations:         
Service revenues $238,003  $245,708  $467,523  $489,918  
Product revenues 112,895  94,199  213,277  174,429  
Total revenues 350,898  339,907  680,800  664,347  
Costs and expenses from continuing operations:         
Cost of services sold 186,840  187,393  368,711  379,068  
Cost of products sold 79,355  64,849  148,664  123,802  
Selling, general and administrative expenses 67,501  49,609  123,907  98,208  
Research and development expenses 1,120  1,006  1,869  1,827  
Other (income) expenses, net (1,717) (1,014) 26  650  
Total costs and expenses 333,099  301,843  643,177  603,555  
Operating income from continuing operations 17,799  38,064  37,623  60,792  
Interest income 591  577  1,124  1,070  
Interest expense (6,103) (5,681) (11,610) (11,271) 
Unused debt commitment and amendment fees (7,435)   (7,435)   
Loss on early extinguishment of debt   (1,034)   (1,034) 
Defined benefit pension income (expense) (1,472) 904  (2,810) 1,743  
Income from continuing operations before income taxes and equity income 3,380  32,830  16,892  51,300  
Income tax (expense) benefit (3,994) 502  (5,213) (5,696) 
Equity income of unconsolidated entities, net 49    70    
Income (loss) from continuing operations (565) 33,332  11,749  45,604  
Discontinued operations:         
Income from discontinued businesses 9,936  11,988  23,686  21,233  
Income tax (expense) benefit related to discontinued businesses 1,558  (2,609) (1,969) (4,549) 
Income from discontinued operations 11,494  9,379  21,717  16,684  
Net income 10,929  42,711  33,466  62,288  
Less: Net income attributable to noncontrolling interests (2,287) (2,222) (4,127) (3,991) 
Net income attributable to Harsco Corporation $8,642  $40,489  $29,339  $58,297  
Amounts attributable to Harsco Corporation common stockholders: 
Income (loss) from continuing operations, net of tax $(2,852) $31,110  $7,622  $41,613  
Loss from discontinued operations, net of tax 11,494  9,379  21,717  16,684  
Net income attributable to Harsco Corporation common stockholders $8,642  $40,489  $29,339  $58,297  
Weighted-average shares of common stock outstanding 80,328  80,861  80,119  80,756  
Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders: 
Continuing operations $(0.04) $0.38  $0.10  $0.52  
Discontinued operations 0.14  0.12  0.27  0.21  
Basic earnings per share attributable to Harsco Corporation common stockholders $0.11 (a)$0.50  $0.37  $0.72 (a)
Diluted weighted-average shares of common stock outstanding 80,328  83,643  82,074  83,594  
Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders: 
Continuing operations $(0.04) $0.37  $0.09  $0.50  
Discontinued operations 0.14  0.11  0.26  0.20  
Diluted earnings per share attributable to Harsco Corporation common stockholders  $0.11 (a)$0.48  $0.36 (a)$0.70  

(a) Does not total due to rounding.

HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)

    
 
(In thousands)
 June 30
 2019
 December 31
 2018
ASSETS    
Current assets:    
Cash and cash equivalents $106,094  $64,260 
Restricted cash 2,985  2,886 
Trade accounts receivable, net 333,357  246,427 
Other receivables 53,019  53,770 
Inventories 133,890  116,185 
Current portion of contract assets 8,215  12,130 
Current portion of assets held-for-sale 91,979  75,232 
Other current assets 52,418  34,144 
Total current assets 781,957  605,034 
Property, plant and equipment, net 550,671  432,793 
Right-of-use assets, net 44,145   
Goodwill 717,727  404,713 
Intangible assets, net 326,688  69,207 
Deferred income tax assets 16,764  48,551 
Assets held-for-sale 74,743  55,331 
Other assets 21,999  17,238 
Total assets $2,534,694  $1,632,867 
LIABILITIES    
Current liabilities:    
Short-term borrowings $10,405  $10,078 
Current maturities of long-term debt 6,840  6,489 
Accounts payable 176,308  124,984 
Acquisition consideration payable 39,182   
Accrued compensation 41,442  50,201 
Income taxes payable 890  2,634 
Insurance liabilities 40,664  40,774 
Current portion of advances on contracts 45,787  29,407 
Current portion of operating lease liabilities 12,960   
Current portion of liabilities of assets held-for-sale 38,077  39,410 
Other current liabilities 120,051  113,019 
Total current liabilities 532,606  416,996 
Long-term debt 1,313,843  585,662 
Insurance liabilities 19,721  19,575 
Retirement plan liabilities 190,525  213,578 
Advances on contracts 9,642  37,675 
Operating lease liabilities 31,440   
Liabilities of assets held-for-sale 15,549  555 
Other liabilities 72,254  45,450 
Total liabilities 2,185,580  1,319,491 
HARSCO CORPORATION STOCKHOLDERS’ EQUITY    
Common stock 143,394  141,842 
Additional paid-in capital 195,034  190,597 
Accumulated other comprehensive loss (580,229) (567,107)
Retained earnings 1,349,520  1,298,752 
Treasury stock (807,003) (795,821)
Total Harsco Corporation stockholders’ equity 300,716  268,263 
Noncontrolling interests 48,398  45,113 
Total equity 349,114  313,376 
Total liabilities and equity $2,534,694  $1,632,867 


HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

  Three Months Ended Six Months Ended
  June 30 June 30
(In thousands) 2019 2018 2019 2018
Cash flows from operating activities:        
Net income $10,929  $42,711  $33,466  $62,288 
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation 29,653  30,587  59,857  62,005 
Amortization 2,747  2,632  5,792  4,566 
Deferred income tax expense (benefit) (4,418) (4,295) (3,823) 340 
Equity in income of unconsolidated entities, net (50)   (70)  
Other, net 2,840  1,093  2,561  3,037 
Changes in assets and liabilities:        
Accounts receivable (23,764) (16,597) (27,034) (21,445)
Inventories (6,049) 315  (20,497) (11,175)
Contract assets (6,839) 4,305  (69) (1,393)
Right-of-use assets 3,333    7,228   
Accounts payable 7,818  19  10,917  7,359 
Accrued interest payable 196  (109) 285  (58)
Accrued compensation 5,399  10,086  (14,525) (16,045)
Advances on contracts (6,975) (5,768) (10,381) (13,116)
Operating lease liabilities (2,981)   (6,894)  
Retirement plan liabilities, net (3,743) (6,078) (13,146) (18,330)
Other assets and liabilities (17,562) (3,959) (18,295) (11,334)
Net cash provided (used) by operating activities (9,466) 54,942  5,372  46,699 
Cash flows from investing activities:        
Purchases of property, plant and equipment (54,794) (29,599) (91,201) (56,496)
Purchases of businesses, net of cash acquired (585,165) (56,389) (584,485) (56,389)
Proceeds from sales of assets 1,028  2,776  2,205  3,153 
Purchase of intangible assets (525)   (525)  
Net payments from settlement of foreign currency forward exchange contracts 3,400  880  (691) (2,942)
Payments for interest rate swap terminations (2,758)   (2,758)  
Net cash used by investing activities (638,814) (82,332) (677,455) (112,674)
Cash flows from financing activities:        
Short-term borrowings, net 3,662  682  84  (2,977)
Current maturities and long-term debt:        
Additions 683,362  78,858  740,360  124,858 
Reductions (1,633) (40,249) (3,333) (43,193)
Dividends paid to noncontrolling interests (3,098) (4,609) (3,098) (4,609)
Sale of noncontrolling interests     876  477 
Stock-based compensation - Employee taxes paid (2,930) (2,905) (11,167) (3,614)
Deferred financing costs (9,464) (354) (9,464) (354)
Net cash provided by financing activities 669,899  31,423  714,258  70,588 
Effect of exchange rate changes on cash and cash equivalents, including restricted cash (225) (4,473) (242) (3,735)
Net increase (decrease) in cash and cash equivalents, including restricted cash 21,394  (440) 41,933  878 
Cash and cash equivalents, including restricted cash, at beginning of period 87,685  67,527  67,146  66,209 
Cash and cash equivalents, including restricted cash, at end of period $109,079  $67,087  $109,079  $67,087 


HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT (Unaudited) (a)
 
  Three Months Ended Three Months Ended
  June 30, 2019 June 30, 2018
(In thousands) Revenues Operating
Income
(Loss)
 Revenues Operating
Income
(Loss)
Harsco Environmental $269,338  $27,577  $272,320  $35,661 
Harsco Clean Earth (a)        
Harsco Rail 81,560  9,443  67,552  8,618 
Corporate   (19,221) 35  (6,215)
Consolidated Totals $350,898  $17,799  $339,907  $38,064 
         
  Six Months Ended Six Months Ended
  June 30, 2019 June 30, 2018
(In thousands) Revenues Operating
Income
(Loss)
 Revenues Operating
Income
(Loss)
Harsco Environmental $530,650  $52,074  $537,043  $63,396 
Harsco Clean Earth (a)        
Harsco Rail 150,150  14,832  127,230  10,570 
Corporate   (29,283) 74  (13,174)
Consolidated Totals $680,800  $37,623  $664,347  $60,792 
  1. The Company's acquisition of Clean Earth closed on June 28, 2019.  Revenues and operating income for the three and six months ended June 30, 2019 are immaterial.  The operating results of the former Harsco Industrial Segment has been reflected as discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented.


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

  Three Months Ended Six
Months Ended
  June 30 June 30
  2019 2018 2019 2018
Diluted earnings (loss) per share from continuing operations as reported $(0.04) $0.37  $0.09  $0.50 
Corporate strategic costs (a) 0.15    0.18   
Corporate unused debt commitment and amendment
fees (b)
 0.09    0.09   
Harsco Environmental Segment provision for doubtful accounts (c) 0.07    0.07   
Harsco Environmental Segment change in fair value to contingent consideration liability (d) (0.05)   (0.04)  
Harsco Rail Segment improvement initiative costs (e) 0.01    0.05   
Harsco Environmental Segment cumulative translation adjustment liquidation (f)     (0.03)  
Harsco Environmental Segment adjustment to slag disposal accrual (g)   (0.04)   (0.04)
Altek acquisition costs (h)   0.01    0.01 
Loss on early extinguishment of debt (i)   0.01    0.01 
Deferred tax asset valuation allowance adjustment (j)   (0.10)   (0.10)
Taxes on above unusual items (k) (0.03)   (0.04)  
Adjusted diluted earnings per share from continuing operations $0.21 (l)$0.25  $0.36 (l)$0.38 
Adjusted diluted earnings per share from discontinued operations 0.16       
Adjusted diluted earnings per share including discontinued operations $0.37       
  1. Costs at Corporate associated with supporting and executing the Company's growth strategy (Q2 2019 $12.4 million pre-tax; six months 2019 $15.1 million pre-tax).
  2. Costs at Corporate related to the unused bridge financing commitment and Term Loan B amendment (Q2 and six months 2019 $7.4 million pre-tax).
  3. Harsco Environmental Segment provision for doubtful accounts related to a customer in the U.K. entering administration (Q2 and six months 2019 $5.4 million pre-tax).
  4. Fair value adjustment to contingent consideration liability related to the acquisition of Altek (Q2 2019 $3.9 million pretax; six months 2019 $3.5 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.
  5. Costs associated with a productivity improvement initiative in the Harsco Rail Segment (Q2 2019 $1.2 million pre-tax; six months 2019 $3.8 million pre-tax).
  6. Harsco Environmental Segment gain related to the liquidation of cumulative translation adjustment related to an exited country (six months 2019 $2.3 million pre-tax).
  7. Harsco Environmental Segment adjustment to previously accrued amounts related to the disposal of certain slag material in Latin America (Q2 and six months 2018 $3.2 million pre-tax).
  8. Costs associated with the acquisition of Altek recorded in the Harsco Environmental Segment (Q2 and six months 2018 $0.8 million pretax) and at Corporate (Q2 and six months 2018 $0.4 million pretax).
  9. Loss on early extinguishment of debt associated with amending the Company's existing Senior Secured Credit Facility in order to reduce the interest rate applicable to the Term Loan Facility (Q2 and six months 2018 $1.0 million pre-tax).
  10. Adjustment of certain existing deferred tax asset valuation allowances as a result of the Altek acquisition (Q2 and six months 2018 $8.3 million).
  11. 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. 
  12. Does not total due to rounding. 

The Company’s management believes Adjusted diluted earnings per share including discontinued operations, 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. Inclusion of discontinued operations, which relate principally to the Harsco Industrial Segment, provides comparability to prior periods.  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 DISCONTINUED OPERATIONS TO DILUTED EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS AS REPORTED
(Unaudited)

  Three
Months
Ended
June 30,
2019
Diluted earnings per share from discontinued operations as reported $0.14 
Transaction related costs (a) 0.08 
Taxes on above unusual items (b) (0.02)
Deferred tax asset adjustment (c) (0.04)
Adjusted diluted earnings per share from discontinued operations $0.16 
  1. Costs directly related to the sale of Harsco Industrial including (i) directly attributable transaction costs ($3.5 million pre-tax); and (ii)  loss on termination of interest rate swaps directly attributable to the mandatory repayment of the Term Loan Facility ($2.7 million pre-tax).
  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. Adjustments to certain deferred tax asset values as a result of the disposal of the Industrial Segment ($3.3 million).

The Company's management believes Adjusted diluted earnings per share from discontinued operations, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company's historical operating results of the former Harsco Industrial Segment, which is now classified as discontinued operations.  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 BEFORE ACQUISITION AMORTIZATION EXPENSE AND INCLUDING DISCONTINUED OPERATIONS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited)


  Three
Months
Ended
 
  September
30
  
  2018  
Diluted earnings per share from continuing operations as reported (a) $0.29   
Acquisition amortization expense, net of tax 0.02   
Adjusted diluted earnings per share from continuing operations before acquisition amortization expense 0.32  (b)
Diluted earnings per share principally from the former Harsco Industrial Segment, excluding acquisition amortization expense 0.10   
Adjusted diluted earnings per share before acquisition amortization expense and including discontinued operations $0.42   
  1. Prior period amounts have been updated to reflect the former Harsco Industrial Segment as discontinued operations.
  2. Does not total due to rounding.

The Company’s management believes Adjusted diluted earnings per share before acquisition amortization expense and including discontinued operations, 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.  Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.  Inclusion of discontinued operations, which relate principally to the Harsco Industrial Segment, provides comparability to prior periods.  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 BEFORE ACQUISITION AMORTIZATION EXPENSE AND INCLUDING DISCONTINUED OPERATIONS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED
(Unaudited)

 
  Twelve
Months
Ended
 
  December
31
 
  2018 
Diluted earnings per share from continuing operations as reported (a) $1.20  
Harsco Environmental adjustment to slag disposal accrual (b) (0.04) 
Harsco Environmental Segment change in fair value to contingent consideration liability (c) (0.04) 
Altek acquisition costs (d) 0.01  
Loss on early extinguishment of debt (e) 0.01  
Harsco Rail Segment improvement initiative costs (f) 0.01  
Taxes on above unusual items (g) (0.01) 
Impact of U.S. tax reform on income tax benefit (expense) (h) (0.18) 
Deferred tax asset valuation allowance adjustment (i) (0.10) 
Adjusted diluted earnings per share from continuing operations 0.88 (j)
Acquisition amortization expense, net of tax 0.07  
Adjusted diluted earnings per share from continuing operations excluding acquisition amortization expense 0.94 (j)
Diluted earnings per share from the former Harsco Industrial Segment, includes acquisition amortization expense 0.45  
Adjusted diluted earnings per share before acquisition amortization expense and including discontinued operations $1.40 (j)
  1. Prior period amounts have been updated to reflect the former Harsco Industrial Segment as discontinued operations.
  2. Harsco Environmental adjustment to previously accrued amounts related to the disposal of certain slag material in Latin America ($3.2 million pre-tax).
  3. Fair value adjustment to contingent consideration liability related to the acquisition of Altek ($2.9 million pre-tax).  The Company adjusts Operating income and Diluted earnings per share from continuing operations to exclude the impact of the change in fair value to the acquisition-related contingent consideration liability for 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. 
  4. Costs associated with the acquisition of Altek recorded in the Harsco Environmental Segment ($0.8 million pretax) and at Corporate ($0.4 million pretax).
  5. Loss on early extinguishment of debt associated with amending the Company's existing Senior Secured Credit Facility in order to reduce the interest rate applicable to the Term Loan Facility ($1.0 million pre-tax). 
  6. Costs associated with a productivity improvement initiative in the Harsco Rail Segment ($0.6 million pre-tax).
  7. 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. 
  8. The Company recorded a benefit (expense) as a result of revaluing net deferred tax assets and liabilities as a result of U.S. tax reform ($15.4 million benefit).
  9. Adjustment of certain existing deferred tax asset valuation allowances as a result of the Altek acquisition ($8.3 million). 
  10. Does not total due to rounding.

The Company’s management believes Adjusted diluted earnings per share before acquisition amortization expense and including discontinued operations, 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.  Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.   Inclusion of discontinued operations, which relate principally to the Harsco Industrial Segment, provides comparability to prior periods.  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 BEFORE ACQUISITION AMORTIZATION EXPENSE AND INCLUDING DISCONTINUED OPERATIONS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
(Unaudited) 

  Projected
Three Months
Ending
September 30
 Projected
Twelve Months
Ending
December 31
  2019 2019
  Low High Low High
Diluted earnings per share from continuing operations (a)(b) $0.24  $0.30  $0.63  $0.76 
Corporate strategic and transaction related costs     0.19  0.19 
Corporate unused debt commitment and amendment fees     0.09  0.09 
Harsco Environmental Segment provision for doubtful accounts     0.07  0.07 
Loss on early extinguishment of debt 0.06  0.06  0.06  0.06 
Harsco Rail Segment improvement initiative costs 0.01  0.01  0.05  0.05 
Harsco Environmental Segment change in fair value to contingent consideration liability     (0.04) (0.04)
Harsco Environmental Segment cumulative translation adjustment liquidation     (0.03) (0.03)
Taxes on above unusual items     (0.04) (0.04)
Adjusted diluted earnings per share from continuing operations 0.31  0.37  0.98  1.11 
Estimated acquisition amortization expense, net of tax 0.04  0.04  0.14  0.14 
Diluted earnings per share from continuing operations, before acquisition related amortization expense 0.35  0.41  1.12  1.25 
Diluted earnings per share from discontinued operations before acquisition amortization expense (c)     0.26  0.26 
Adjusted diluted earnings per share before acquisition amortization expense and including discontinued operations $0.35  $0.41  $1.38  $1.51 
  1. Includes results for the Harsco Clean Earth Segment for the period from July 1, 2019 to December 31, 2019.
  2. Excludes results for the former Harsco Industrial Segment.
  3. Includes results for the former Harsco Industrial Segment for the period from January 1, 2019 to June 30, 2019.

The Company’s management believes Adjusted diluted earnings per share before acquisition amortization expense and including discontinued operations, 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.  Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.  Inclusion of discontinued operations, which relate principally to the Harsco Industrial Segment, provides comparability to prior periods.  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) INCLUDING DISCONTINUED OPERATIONS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
 
(In thousands) Harsco
Environmental
 Harsco Clean
Earth (a)
 Harsco
Industrial (a)
 Harsco
Rail
 Corporate Consolidated
Totals
             
Three Months Ended June 30, 2019:          
Operating income (loss) as reported $27,577  $  $  $9,443  $(19,221) $17,799 
Corporate strategic costs         12,390  12,390 
Harsco Environmental Segment provision for doubtful accounts 5,359          5,359 
Harsco Environmental Segment change in fair value to contingent consideration liability (3,879)         (3,879)
Harsco Rail Segment improvement initiative costs       1,152    1,152 
Adjusted operating income (loss) 29,057      10,595  (6,831) 32,821 
Operating income in discontinued operations     20,413      20,413 
Adjusted operating income (loss) including discontinued operations $29,057  $  $20,413  $10,595  $(6,831) $53,234 
             
Revenues as reported $269,338  $  $  $81,560  $  $350,898 
Revenues in discontinued operations     116,796      116,796 
Revenues including discontinued operations $269,338  $  $116,796  $81,560  $  $467,694 
Adjusted operating margin (%) 10.8%     13.0%   9.4%
Adjusted operating margin (%) including discontinued operations 10.8%   17.5% 13.0%   11.4%
             
           
           
Three Months Ended June 30, 2018:          
Operating income (loss) as reported $35,661  $  $  $8,618  $(6,215) $38,064 
Harsco Environmental adjustment to slag disposal accrual (3,223)         (3,223)
Altek acquisition costs 753        431  1,184 
Adjusted operating income (loss) 33,191      8,618  (5,784) 36,025 
Operating income in discontinued operations     15,561      15,561 
Adjusted operating income (loss) including discontinued operations $33,191  $  $15,561  $8,618  $(5,784) $51,586 
             
Revenues as reported $272,320  $  $  $67,552  $35  $339,907 
Revenues in discontinued operations     92,065      92,065 
Revenues including discontinued operations $272,320  $  $92,065  $67,552  $35  $431,972 
Adjusted operating margin (%) 12.2%     12.8%   10.6%
Adjusted operating margin (%) including discontinued operations 12.2%   16.9% 12.8%   11.9%
  1. The Company's acquisition of Clean Earth closed on June 28, 2019.  Revenues and operating income for the three and six months ended June 30, 2019 are immaterial.  The operating results of the former Harsco Industrial Segment has been reflected as discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented.

The Company’s management believes Adjusted operating income (loss) including discontinued operations, 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.  Inclusion of discontinued operations, which relates principally to the Harsco Industrial Segment, provides comparability to prior periods.  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) INCLUDING DISCONTINUED OPERATIONS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
 
(In thousands) Harsco
Environmental
 Harsco Clean
Earth (a)
 Harsco
Industrial (a)
 Harsco 
Rail
 Corporate Consolidated
Totals
             
Six Months Ended June 30, 2019:          
Operating income (loss) as reported $52,074  $  $  $14,832  $(29,283) $37,623 
Corporate strategic costs         15,129  15,129 
Harsco Environmental provision for doubtful accounts 5,359          5,359 
Harsco Rail Segment improvement initiative costs       3,800    3,800 
Harsco Environmental Segment change in fair value to contingent consideration liability (3,510)         (3,510)
Harsco Environmental cumulative translation adjustment liquidation (2,271)         (2,271)
Adjusted operating income (loss) 51,652      18,632  (14,154) 56,130 
Operating income in discontinued operations     38,834      38,834 
Adjusted operating income (loss) including discontinued operations $51,652  $  $38,834  $18,632  $(14,154) $94,964 
             
Revenues as reported $530,650  $  $  $150,150  $  $680,800 
Revenues in discontinued operations     234,181      234,181 
Revenues including discontinued operations $530,650  $  $234,181  $150,150  $  $914,981 
Adjusted operating margin (%) 9.7%     12.4%   8.2%
Adjusted operating margin (%) including discontinued operations 9.7%   16.6% 12.4%   10.4%
             
           
           
Six Months Ended June 30, 2018:          
Operating income (loss) as reported $63,396  $  $  $10,570  $(13,174) $60,792 
Harsco Environmental adjustment to slag disposal accrual (3,223)         (3,223)
Altek acquisition costs 753        431  1,184 
Adjusted operating income (loss) 60,926      10,570  (12,743) 58,753 
Operating income in discontinued operations     29,373      29,373 
Adjusted operating income (loss) including discontinued operations $60,926  $  $29,373  $10,570  $(12,743) $88,126 
             
Revenues as reported $537,043  $  $  $127,230  $74  $664,347 
Revenues in discontinued operations     175,663      175,663 
Revenues including discontinued operations $537,043  $  $175,663  $127,230  $74  $840,010 
Adjusted operating margin (%) 11.3%     8.3%   8.8%
Adjusted operating margin (%) including discontinued operations 11.3%   16.7% 8.3%   10.5%
  1. The Company's acquisition of Clean Earth closed on June 28, 2019.  Revenues and operating income for the three and six months ended June 30, 2019 are immaterial.  The operating results of the former Harsco Industrial Segment has been reflected as discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented.

The Company’s management believes Adjusted operating income (loss) including discontinued operations, 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.  Inclusion of discontinued operations, which relates principally to the Harsco Industrial Segment, provides comparability to prior periods.  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) BEFORE ACQUISITION AMORTIZATION EXPENSE AND INCLUDING DISCONTINUED OPERATIONS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
 
(In thousands) Harsco
Environmental
 Harsco
Industrial (a)
 Harsco 
Rail
 Corporate Consolidated
Totals
           
Three Months Ended September 30, 2018:        
Operating income (loss) as reported (b) $29,338  $  $19,000  $(6,579) $41,759 
Harsco Environmental Segment change in fair value to contingent consideration liability 412        412 
Adjusted operating income (loss) 29,750    19,000  (6,579) 42,171 
Acquisition amortization expense 1,872    71    1,943 
Adjusted operating income (loss) before acquisition amortization expense 31,622    19,071  (6,579) 44,114 
Discontinued operations - Harsco Industrial including acquisition amortization expense   15,802      15,802 
Adjusted operating income (loss) before acquisition amortization expense and including discontinued operations $31,622  $15,802  $19,071  $(6,579) $59,916 
           
  1. The operating results of the former Harsco Industrial Segment has been reflected as discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented.

The Company’s management believes Adjusted operating income (loss) before acquisition amortization expense and including discontinued operations, 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.  Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.  Inclusion of discontinued operations, which relate principally to the Harsco Industrial Segment, provides comparability to prior periods. 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) BEFORE ACQUISITION AMORTIZATION EXPENSE AND INCLUDING DISCONTINUED OPERATIONS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
 
(In thousands) Harsco
Environmental
 Harsco
Industrial (a)
 Harsco
Rail
 Corporate Consolidated
Totals
           
Twelve Months Ended December 31, 2018:        
Operating income (loss) as reported $121,195  $  $37,341  $(27,839) $130,697 
Harsco Environmental adjustment to slag disposal accrual (3,223)       (3,223)
Harsco Environmental Segment change in fair value to contingent consideration liability (2,939)       (2,939)
Altek acquisition costs 753      431  1,184 
Harsco Rail Segment improvement initiative costs     640    640 
Adjusted operating income (loss) 115,786    37,981  (27,408) 126,359 
Acquisition amortization expense 5,553    306    5,859 
Adjusted operating income (loss) before acquisition amortization expense 121,339    38,287  (27,408) 132,218 
Discontinued operations - Harsco Industrial before acquisition amortization expense   62,036      62,036 
Adjusted operating income (loss) before acquisition amortization expense and including discontinued operations $121,339  $62,036  $38,287  $(27,408) $194,254 
  1. The operating results of the former Harsco Industrial Segment has been reflected as discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented.

The Company’s management believes Adjusted operating income (loss) before acquisition amortization expense and including discontinued operations, 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.  Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.  Inclusion of discontinued operations, which relates principally to the Harsco Industrial Segment, provides comparability to prior periods.  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 BEFORE ACQUISITION AMORTIZATION EXPENSE AND INCLUDING DISCONTINUED OPERATIONS TO OPERATING INCOME (Unaudited)
 
  Projected
Three Months
Ended
 Projected
Twelve Months
Ended
  September 30, 2019 December 31, 2019
(In millions) Low High Low High
Operating income (a) (b) $50  $55  $142  $152 
Corporate strategic and transaction related costs     15  15 
Harsco Environmental Segment provision for doubtful accounts     5  5 
Harsco Rail Segment improvement initiative costs 1  1  5  5 
Harsco Environmental Segment change in fair value to contingent consideration liability     (4) (4)
Harsco Environmental Segment cumulative translation adjustment liquidation     (2) (2)
Adjusted operating income 51  56  161  171 
Estimated acquisition amortization expense 5  5  15  15 
Adjusted operating income before acquisition amortization expense 56  61  176  186 
Operating income from the former Harsco Industrial Segment before acquisition amortization (c)     39  39 
Adjusted operating income before acquisition amortization expense and including discontinued operations $56  $61  $215  $225 
  1. Includes results for the Harsco Clean Earth Segment for the period from July 1, 2019 to December 31, 2019.
  2. Excludes results for the former Harsco Industrial Segment.
  3. Includes results for the former Harsco Industrial Segment for the period from January 1, 2019 to June 30, 2019.

The Company’s management believes Adjusted operating income before acquisition amortization expense and including discontinued operations, 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.  Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.  Inclusive of discontinued operations, which relate principally to the Harsco Industrial Segment, provides comparability to prior periods. 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 HARSCO CLEAN EARTH SEGMENT OPERATING INCOME BEFORE ACQUISITION AMORTIZATION EXPENSE TO HARSCO CLEAN EARTH SEGMENT OPERATING INCOME (Unaudited)
 
  Projected
Six Months Ended
December 31
  2019
(In millions) Low High
Harsco Clean Earth Segment operating income $25  $28 
Add:  Acquisition amortization expense 7  7 
Adjusted Harsco Clean Earth Segment operating income before acquisition amortization expense $32  $35 

The Company's management believes Adjusted Harsco Clean Earth Segment operating income before acquisition amortization expense, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Clean Earth Segment's future prospects.  Exclusion of acquisition related amortization expense permits evaluation of comparison of results for the Company's core business operations, and it is on this basis that management internally assesses the Company's performance.

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

  Three Months Ended Six Months Ended
  June 30 June 30
(In thousands) 2019 2018 2019 2018
Net cash provided (used) by operating activities $(9,466) $54,942  $5,372  $46,699 
Less capital expenditures (54,794) (29,599) (91,201) (56,496)
Less purchase of intangible assets (525)   (525)  
Plus capital expenditures for strategic ventures (a) 2,527  295  3,370  535 
Plus total proceeds from sales of assets (b) 1,028  2,776  2,205  3,153 
Plus transaction-related expenditures (c) 15,990    15,990   
Free cash flow (45,240) 28,414  (64,789) (6,109)
Add growth capital expenditures 18,086  4,458  30,603  12,142 
Free cash flow before growth capital expenditures $(27,154) $32,872  $(34,186) $6,033 
  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 Environmental Segment.
  3. Expenditures directly related to the Company's acquisition and divestiture transactions.

The Company's management believes that Free cash flow before growth capital expenditures, which is a non-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 and transaction-related expenditures for planning and performance evaluation purposes. The Company’s management also believes that free cash flow before growth capital expenditures, which is a non-U.S. GAAP financial measure, is meaningful to investors because management uses this as a key factor in the deployment of capital for strategic planning purposes. It is important to note that free cash flow and free cash flow before growth capital expenditures do not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from these measures. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.


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

  Twelve
Months
Ended
  December
31
(In thousands) 2018
Net cash provided by operating activities $192,022 
Less capital expenditures (132,168)
Plus capital expenditures for strategic ventures (a) 1,595 
Plus total proceeds from sales of assets (b) 11,887 
Free cash flow 73,336 
Add growth capital expenditures 30,655 
Free cash flow before growth capital expenditures $103,991 
  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 Environmental Segment.

The Company's management believes that Free cash flow before growth capital expenditures, 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 and transaction-related expenditures for planning and performance evaluation purposes. The Company’s management also believes that free cash flow before growth capital expenditures, which is a non-U.S. GAAP financial measure, is meaningful to investors because management uses this as a key factor in the deployment of capital for strategic planning purposes. It is important to note that free cash flow and free cash flow before growth capital expenditures do not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from these measures. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.


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

  Projected
Twelve Months Ending
December 31
  2019
(In millions) Low High
Net cash provided by operating activities $187  $207 
Less capital expenditures (161) (169)
Plus total proceeds from asset sales and capital expenditures for strategic ventures 6  4 
Transaction related expenses 23  23 
Free cash flow 55  65 
Add growth capital expenditures 70  70 
Free cash flow before growth capital expenditures $125  $135 

The Company's management believes that Free cash flow before growth capital expenditures, 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 and transaction-related expenditures for planning and performance evaluation purposes. The Company’s management also believes that free cash flow before growth capital expenditures, which is a non-U.S. GAAP financial measure, is meaningful to investors because management uses this as a key factor in the deployment of capital for strategic planning purposes. It is important to note that free cash flow and free cash flow before growth capital expenditures do not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from these measures. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.


HARSCO CORPORATION
RECONCILIATION OF RETURN ON INVESTED CAPITAL TO NET INCOME AS REPORTED (a)
(Unaudited)

  Trailing Twelve Months
for Period Ended June 30
(In thousands) 2019 2018
Net income as reported $116,191  $44,264 
     
Corporate strategic costs 15,129   
Unused debt commitment and amendment fees 7,435   
Transaction-related costs for discontinued operations 6,268   
Harsco Rail Segment improvement initiative costs 4,440   
Harsco Environmental Segment change in fair value to contingent consideration liability (6,449)  
Harsco Environmental Segment provision for doubtful accounts 5,359   
Harsco Environmental Segment cumulative translation adjustment liquidation (2,271)  
Harsco Environmental Segment bad debt expense   4,589 
Loss on early extinguishment of debt   3,299 
Harsco Environmental Segment adjustment to slag disposal accrual   (3,223)
Altek acquisition costs   1,184 
Taxes on above unusual items (b) (4,920) (2,272)
Impact of U.S. tax reform on income tax benefit (15,409) 48,680 
Deferred tax asset valuation allowance adjustment (3,252) (8,292)
Net income from continuing operations, as adjusted 122,521  88,229 
After-tax interest expense (c) 29,781  29,875 
     
Net operating profit after tax as adjusted $152,302  $118,104 
     
Average equity $317,987  $230,115 
Plus average debt 701,088  626,590 
Average capital $1,019,075  $856,705 
     
Return on invested capital 14.9% 13.8%
  1. Return on invested capital excluding unusual items is net income (loss) 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 23% for the trailing twelve months for the period ended June 30, 2019 and for the trailing twelve months for the period ended June 30, 2018, 37% was used for June 1, 2017 through December 31, 2017 and 23% was used for January 1, 2018 through June 30, 2018, on an adjusted basis, for interest expense.

The Company’s management believes Return on invested capital, 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 TO NET INCOME AS REPORTED (a)
(Unaudited)

  Year
Ended
December
31
(In thousands) 2018
Net income as reported $145,013 
   
Harsco Environmental Segment adjustment to slag disposal accrual (3,223)
Harsco Environmental Segment change in fair value to contingent consideration liability (2,939)
Altek acquisition costs 1,184 
Loss on early extinguishment of debt 1,034 
Harsco Rail Segment improvement initiative costs 640 
Taxes on above unusual items (b) (361)
Impact of U.S. tax reform on income tax benefit (15,409)
Deferred tax asset valuation allowance adjustment (8,292)
Net income from continuing operations, as adjusted 117,647 
After-tax interest expense (c) 29,374 
   
Net operating profit after tax as adjusted $147,021 
   
Average equity $274,164 
Plus average debt 635,491 
Average capital $909,655 
   
Return on invested capital 16.2%
  1. Return on invested capital excluding unusual items is net income 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 23% for the year ended December 31, 2018 on an adjusted basis, for interest expense.

The Company’s management believes Return on invested capital, 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.