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Harsco Corporation Reports Third Quarter 2013 Results

HSC

Company Reports Adjusted EPS in Line With Guidance; Infrastructure Joint Venture on Track to Close in the Fourth Quarter

CAMP HILL, Pa., Nov. 7, 2013 (GLOBE NEWSWIRE) -- Diversified global industrial company Harsco Corporation (NYSE:HSC) today reported third quarter 2013 results. Including special items related to the Company's previously announced Infrastructure joint venture transaction of $3.09 per share, third quarter 2013 U.S. GAAP ("GAAP") diluted loss per share from continuing operations was $2.89. This compares with GAAP diluted earnings per share of $0.32 in the third quarter of 2012. Excluding special items, adjusted diluted earnings per share from continuing operations were $0.20 in the third quarter of 2013 and $0.39 in the third quarter of 2012. (See the attached Non-GAAP Financial Measures tables for reconciliation of GAAP and adjusted results.)

CEO Comment

"Our third quarter results were in line with our guidance, and cash flow generation was quite strong," said Harsco President and CEO Patrick Decker. "During the quarter we announced the first major step to transform Harsco through the sale of our Infrastructure business into a joint venture with Clayton, Dubilier & Rice. We are on track to close the transaction in the fourth quarter. The transaction will immediately strengthen our financial profile and increase our financial flexibility to pursue higher return, higher growth opportunities. Moreover, we believe our minority equity stake in the new, stronger infrastructure joint venture will create significant additional value for our shareholders.

"We are committed to strengthening Harsco's financial return profile and are confident that we are taking the necessary actions to achieve this goal," continued Mr. Decker. "In Metals & Minerals, we are executing initiatives to drive greater returns on capital and operating effectiveness across the business. In Rail, we are actively rebuilding our project backlog and are pleased to have recently announced our strategic entry into the influential European market with a significant contract win valued at $100 million."

Harsco Corporation—Selected Third Quarter Results

($ in millions, except per share amounts)      
  3Q 13 3Q 12 % Change
Revenues  $ 740  $ 757 -2%
Operating income (loss) from continuing operations--GAAP  $ (208)  $ 50 nmf
Operating margin from continuing operations--GAAP nmf 6.7%  
Diluted EPS (loss) from continuing operations--GAAP  $ (2.89)  $ 0.32 nmf
Special items per diluted share  $ 3.09  $ 0.07  
Adjusted operating income--excluding special items  $ 42  $ 55 -23%
Adjusted operating margin--excluding special items 5.7% 7.2%  
Diluted EPS from continuing operations--excluding special items  $ 0.20  $ 0.39 -49%
Return on invested capital (ttm)--excluding special items 4.2% 4.6%  
nmf---not meaningful

Consolidated Third Quarter Operating Results

Total revenues declined two percent to $740 million, primarily due to lower volume of equipment deliveries in Rail compared with the very strong prior-year quarter, as well as the non-renewal of certain contracts in Metals & Minerals. These declines were partially offset by volume growth in Infrastructure and Industrial. Foreign currency translation negatively impacted revenues by $5 million in the quarter.

GAAP operating loss from continuing operations was $208 million, compared with income of $50 million in the prior-year quarter. Excluding special items, adjusted operating income from continuing operations declined 23 percent, primarily due to lower Rail and Metals & Minerals results, as well as certain strategic advisory costs. Adjusted operating margin declined 150 basis points.  

Special Items Related to Infrastructure Transaction

The Company's third quarter 2013 GAAP results included special items related to the Infrastructure joint venture transaction. The following table reconciles GAAP and adjusted results.

($ in millions, except EPS) Operating  
  Income EPS
Reported results--GAAP  $ (208)  $ (2.89)
Non-cash impairment charge related to Infrastructure assets "held-for-sale"  241  2.79
Transaction costs  12  0.11
Tax impact on non-cash deferred tax valuation allowance and undistributed earnings to be repatriated to U.S.    0.24
Depreciation reversal for Infrastructure assets "held-for-sale"  (3)  (0.04)
Adjusted results--Non-GAAP  $ 42  $ 0.20
EPS does not total due to rounding.    

Third Quarter Business Review

Metals & Minerals

($ in millions)      
  3Q 13 3Q 12 % Change
Revenues  $ 336  $ 345 -3%
Operating income--GAAP  $ 23  $ 26 -13%
Operating margin--GAAP 6.9% 7.6%  
Special items  $ --   $ 0.7  
Adjusted operating income--excluding special items  $ 23  $ 27 -15%
Adjusted operating margin--excluding special items 6.9% 7.9%  
Customer liquid steel tons (millions)  40.7  41.1 -1%

Revenues declined three percent to $336 million, principally due to the non-renewal of certain contracts and the effect of lower scrap and nickel prices, as well as a production outage at a large customer location in North America. These factors were partially offset by the benefit of new contracts coming on line and volume growth in existing contracts. Foreign currency translation negatively impacted revenues by $4 million in the quarter.

Operating income declined 15 percent to $23 million from adjusted operating income of $27 million in the prior-year quarter. Operating margin decreased to 6.9 percent from last year's adjusted 7.9 percent. This performance primarily reflected the aforementioned factors and costs related to the Simplification initiative.

Rail

($ in millions)      
  3Q 13 3Q 12 % Change
Revenues  $ 66  $ 91 -27%
Operating income  $ 8  $ 14 -42%
Operating margin 12.1% 15.2%  

Revenues declined 27 percent to $66 million, primarily due to lower volume of equipment deliveries and contract services. These declines were partially offset by strong aftermarket parts sales. The prior-year quarter included a significant level of high-margin equipment deliveries to the China Railway Corporation (formerly the China Ministry of Railways).

Operating income decreased 42 percent and operating margin declined 310 basis points, reflecting the difficult year-over year comparison. While Rail's results were lower than the prior-year quarter, the business delivered better-than-expected operating income and margin due to strong aftermarket parts sales.

Industrial

($ in millions)      
  3Q 13 3Q 12 % Change
Revenues  $ 95  $ 91 5%
Operating income  $ 16  $ 17 -5%
Operating margin 16.7% 18.3%  

Revenues increased five percent to $95 million, primarily due to strong customer demand for grating products and improved volume for boilers, partially offset by a modest decline in air-cooled heat exchanger volume. Operating income declined five percent to $16 million and operating margin declined 160 basis points due to business mix in the quarter.

Infrastructure

($ in millions)      
  3Q 13 3Q 12 % Change
Revenues  $ 243  $ 229 6%
Operating loss--GAAP  $ (242)  $ (6) nmf
Operating margin--GAAP nmf -2.6%  
Special items  $ 238  $ 4  
Adjusted operating loss--excluding special items  $ (4)  $ (3) -64%
Adjusted operating margin--excluding special items -1.7% -1.1%  
Rental equipment utilization rate 59.7% 60.2%  
nmf--not meaningful      

Revenues grew six percent to $243 million. Infrastructure's GAAP operating loss was $242 million, compared with a loss of $6 million in the prior-year-quarter. Excluding special items in both periods, Infrastructure's operating loss was $4 million, versus $3 million in the comparable quarter. This performance reflected lower industrial services activity in the UK and Benelux, partially offset by improved equipment rental and industrial services activity in North America.  

Cash Flow

Free cash flow was $49 million in the third quarter of 2013, compared with $22 million in the prior-year period. This cash flow performance primarily reflected strong improvement in working capital.

Fourth Quarter 2013 Outlook

The Company expects its fourth quarter will include a number of non-recurring items related to the Infrastructure transaction. These include restructuring charges to address stranded Infrastructure costs and to reduce overall corporate overhead costs; an adjustment to the impairment charge recorded in the third quarter of 2013; and transaction-related costs. In addition, the precise timing of the Infrastructure transaction close and subsequent impact on the Company's equity income from the joint venture, as well as its impact on the Company's non-cash tax rate are not known at this time. Therefore, the Company is providing fourth quarter guidance for operating income for its continuing businesses, excluding these items.

Metals & Minerals' revenues for the fourth quarter are expected to grow in the low-single digits and operating income is anticipated to increase in the high-single digits versus the prior year quarter. This outlook reflects growth from higher-return contracts coming on line and modest growth in liquid steel tonnage.

Rail's revenues are expected to decline approximately 30 percent from a very strong prior-year quarter. This outlook reflects the effects of quarter-to-quarter timing of equipment deliveries, specifically the very strong fourth quarter of 2012 that was driven by deliveries to the China Railway Corporation. Despite the anticipated revenue decline, operating margin is anticipated to be in the low-double digits, reflecting strong aftermarket parts sales focus and a continued focus on driving operational efficiencies.

Industrial's revenues are expected to be essentially flat with the prior-year quarter. Operating margin is expected to be in the mid-to-high teens. This business continues to see similar business dynamics as the third quarter, led by stronger grating and boiler sales.

The Company expects operating income from the Metals & Minerals, Rail and Industrial segments to range from $37 to $42 million in the fourth quarter, excluding special items. This outlook reflects the aforementioned segment-specific factors, as well as $2 to $3 million of expenses for ongoing strategic consulting services. The Company reported operating income for these three segments of $51 million, excluding special items, in the fourth quarter of 2012.

Conference Call

As previously announced, the Company will hold a conference call today at 10:00 a.m. Eastern Time to discuss its results and respond to questions from the investment community. The conference call will be broadcast live through the Harsco Corporation website at www.harsco.com. The Company will refer to a slide presentation that accompanies its formal remarks. The slide presentation will be available on the Company's website.

The call can also be accessed by telephone by dialing (800) 611-4920, or (973) 200-3957 for international callers. Enter Conference ID number 86824553. Listeners are advised to dial in at least five minutes prior to the call.

Replays will be available via the Harsco website.

Forward-Looking Statements

The nature of the Company's business and the many countries in which it operates subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein. Forward-looking statements contained herein could include, among other things, statements about the Company's outlook for the fourth quarter of 2013, management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, revenues, cash flows, earnings and Economic Value Added ("EVA®"). Forward-looking statements can be identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "plan" or other comparable terms.

Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including general economic conditions; (2) changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs; (3) changes in the performance of equity and bond markets that could affect, among other things, the valuation of the assets in the Company's pension plans and the accounting for pension assets, liabilities and expenses; (4) changes in governmental laws and regulations, including environmental, tax and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (7) the seasonal nature of the Company's business; (8) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the timeframe contemplated, or at all; (9) the integration of the Company's strategic acquisitions; (10) the amount and timing of repurchases of the Company's common stock, if any; (11) the prolonged recovery in global financial and credit markets and economic conditions generally, which could result in the Company's customers curtailing development projects, construction, production and capital expenditures, which, in turn, could reduce the demand for the Company's products and services and, accordingly, the Company's revenues, margins and profitability; (12) the outcome of any disputes with customers; (13) the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability; (14) the Company's ability to successfully implement and receive the expected benefits of cost-reduction and restructuring initiatives, including the achievement of expected cost savings in the expected time frame; (15) the Company's ability to successfully implement its strategic initiatives and portfolio optimization and the impact of such initiatives; (16) the ability and timing to consummate the strategic venture between the Company and Clayton, Dubilier & Rice ("CD&R"), including the ability and timing to obtain required regulatory approvals and satisfy other closing conditions; (17) the strategic venture's ability to promptly and effectively integrate the Company's Infrastructure business and the Brand Energy & Infrastructure Services business and realize the synergies contemplated by the potential transaction; (18) the Company's ability to realize cost savings from the divestiture of the Harsco Infrastructure Segment, as well as the transaction being accretive to earnings and improving operating margins and return on capital; (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, 2012. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements except as may be required by law.

About Harsco

Harsco Corporation serves key industries that play a fundamental role in worldwide growth and development, including steel and metals production, construction, railways and energy. Harsco's common stock is a component of the S&P MidCap 400 Index and the Russell 1000 Index. Additional information can be found at www.harsco.com.

     
     
     
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
   
  Three Months Ended
September 30
Nine Months Ended
September 30
(In thousands, except per share amounts) 2013 2012 2013 2012
Revenues from continuing operations:        
Service revenues $ 571,595 $ 571,892 $ 1,707,658 $ 1,769,415
Product revenues  168,450  184,891  507,518  510,278
Total revenues  740,045  756,783  2,215,176  2,279,693
         
Costs and expenses from continuing operations:        
Cost of services sold  450,048  453,304  1,353,749  1,406,727
Cost of products sold  117,844  126,683  355,555  351,707
Selling, general and administrative expenses  124,004  121,856  374,325  376,653
Research and development expenses  3,077  2,162  7,457  6,908
Long-lived asset impairment charge and transaction costs  253,677  --  253,677  --
Other (income) expenses  (228)  2,383  2,158  65,351
Total costs and expenses  948,422  706,388  2,346,921  2,207,346
Operating income (loss) from continuing operations  (208,377)  50,395  (131,745)  72,347
Interest income  388  1,449  1,624  3,005
Interest expense  (12,815)  (11,609)  (37,413)  (36,041)
Income (loss) from continuing operations before income taxes and equity income  (220,804)  40,235  (167,534)  39,311
Income tax expense  (10,795)  (13,545)  (27,268)  (28,489)
Equity in income of unconsolidated entities, net  434  182  1,015  479
Income (loss) from continuing operations  (231,165)  26,872  (193,787)  11,301
Discontinued operations:        
Loss on disposal of discontinued business  (640)  (52)  (2,145)   (1,217)
Income tax benefit related to discontinued business  239  248  814  685
Income (loss) from discontinued operations  (401)  196  (1,331)  (532)
Net income (loss)  (231,566)  27,068  (195,118)  10,769
Less: Net income attributable to noncontrolling interests  (2,090)  (664)  (7,495)  (1,023)
Net income (loss) attributable to Harsco Corporation $ (233,656) $ 26,404 $ (202,613) $ 9,746
         
Amounts attributable to Harsco Corporation common stockholders:        
Income (loss) from continuing operations, net of tax $ (233,255) $ 26,208 $ (201,282) $ 10,278
Income (loss) from discontinued operations, net of tax  (401)  196  (1,331)  (532)
Net income (loss) attributable to Harsco Corporation common stockholders $ (233,656) $ 26,404 $ (202,613) $ 9,746
         
Weighted-average shares of common stock outstanding  80,775  80,659  80,747  80,623
Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders:        
Continuing operations $ (2.89) $ 0.32 $ (2.49) $ 0.13
Discontinued operations  --  --  (0.02)  (0.01)
Basic earnings (loss) per share attributable to Harsco Corporation common stockholders  
$ (2.89)
 
$ 0.33(a)
 
$ (2.51)
 
$ 0.12
         
Diluted weighted-average shares of common stock outstanding  80,775  80,910  80,747  80,863
Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders:        
Continuing operations $ (2.89) $ 0.32 $ (2.49) $ 0.13
Discontinued operations  --  --  (0.02)  (0.01)
Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders  
$ (2.89)
 
$ 0.33(a)
 
$ (2.51)
 
$ 0.12
(a)   Does not total due to rounding.        
     
     
     
HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
   
 
(In thousands)
September 30
2013
December 31
2012
ASSETS    
Current assets:    
Cash and cash equivalents  $ 115,812  $ 95,250
Trade accounts receivable, net 354,121 600,264
Other receivables 29,627 39,836
Inventories 176,792 236,512
Assets held-for-sale 714,986 2,399
Other current assets 74,238 92,182
Total current assets 1,465,576 1,066,443
Property, plant and equipment, net 706,618 1,266,225
Goodwill 428,027 429,198
Intangible assets, net 54,684 77,726
Other assets 114,628 136,377
Total assets  $ 2,769,533  $ 2,975,969
LIABILITIES    
Current liabilities:    
Short-term borrowings  $ 274,283  $ 8,560
Current maturities of long-term debt 7,337 3,278
Accounts payable 196,530 221,479
Accrued compensation 53,788 94,398
Income taxes payable 1,541 10,109
Dividends payable 16,536 16,520
Insurance liabilities 13,640 19,434
Advances on contracts 28,108 47,696
Liabilities of assets held-for-sale 218,046 --
Other current liabilities 150,642 216,101
Total current liabilities 960,451 637,575
Long-term debt 787,568 957,428
Deferred income taxes 8,337 18,880
Insurance liabilities 42,003 63,248
Retirement plan liabilities 314,593 385,062
Other liabilities 51,248 52,152
Total liabilities 2,164,200 2,114,345
EQUITY    
Harsco Corporation stockholders' equity:    
Common stock 140,224 140,080
Additional paid-in capital 158,417 152,645
Accumulated other comprehensive loss (429,665) (411,168)
Retained earnings 1,423,209 1,675,490
Treasury stock (746,046) (745,205)
Total Harsco Corporation stockholders' equity 546,139 811,842
Noncontrolling interests 59,194 49,782
Total equity 605,333 861,624
Total liabilities and equity  $ 2,769,533  $ 2,975,969
         
         
         
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
       
  Three Months Ended
September 30
Nine Months Ended
September 30
(In thousands) 2013 2012 2013 2012
         
Cash flows from operating activities:        
Net income (loss)  $ (231,566)  $ 27,068  $ (195,118)  $ 10,769
Adjustments to reconcile net income (loss) to net cash provided by operating  activities:        
Depreciation 56,496 61,293 178,136 188,182
Amortization 4,120 4,595 12,967 15,662
Deferred income tax expense (benefit) 5,993 4,934 3,465 (6,867)
Equity in income of unconsolidated entities, net (434) (182) (1,015) (479)
Dividends from unconsolidated entities -- 154 -- 308
Harsco 2011/2012 Restructuring Program non-cash adjustment -- 2,229 -- 21,787
Impairment of long-lived assets 241,323 -- 241,323 --
Other, net 708 (13,279) (1,449) (29,263)
Changes in assets and liabilities:        
Accounts receivable 26,204 4,317 (21,194) (1,247)
Inventories 2,692 1,552 (10,671) (23,298)
Accounts payable 18,933 (16,768) 28,882 (24,719)
Accrued interest payable 5,767 5,755 6,333 5,786
Accrued compensation 9,746 8,005 (5,036) 2,286
Harsco Infrastructure Segment 2010 Restructuring Program accrual (575) (2,004) (870) (4,755)
Harsco 2011/2012 Restructuring Program accrual (3,546) (4,542) (14,496) (8,050)
Other assets and liabilities (28,143) (7,505) (57,170) (34,733)
         
Net cash provided by operating activities 107,718 75,622 164,087 111,369
         
Cash flows from investing activities:        
Purchases of property, plant and equipment (61,515) (64,925) (181,706) (172,770)
Proceeds from sales of assets 2,094 6,316 16,947 42,889
Purchases of businesses; net of cash acquired (2,841) (517) (2,841) (517)
Other investing activities, net (2,585) (891) (4,985) 457
         
Net cash used by investing activities (64,847) (60,017) (172,585) (129,941)
         
Cash flows from financing activities:        
Short-term borrowings, net (3,949) (12,936) 239 (39,302)
Current maturities and long-term debt:        
Additions 157,466 29,958 284,861 249,034
Reductions (152,400) (27,223) (203,677) (151,399)
Cash dividends paid on common stock (16,559) (16,519) (49,652) (49,548)
Dividends paid to noncontrolling interests (225) (192) (2,880) (2,264)
Contributions from noncontrolling interests 120 112 4,622 8,097
Purchase of noncontrolling interests -- -- (166) --
Common stock issued - options -- -- 371 725
Other financing activities, net (405) (1) (405) (2,709)
         
Net cash provided (used) by financing activities (15,952) (26,801) 33,313 12,634
         
Effect of exchange rate changes on cash (108) 3,567 (4,253) (1,506)
         
Net increase (decrease) in cash and cash equivalents 26,811 (7,629) 20,562 (7,444)
         
Cash and cash equivalents at beginning of period 89,001 121,369 95,250 121,184
         
Cash and cash equivalents at end of period  $ 115,812  $ 113,740  $ 115,812  $ 113,740
     
     
     
HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)
   
     
     
  Three Months Ended
September 30, 2013
Three Months Ended
September 30, 2012
         
(In thousands)
Revenues
Operating
Income (Loss)

Revenues
Operating
Income (Loss)
         
Harsco Metals & Minerals  $ 335,705  $ 23,036  $ 344,867  $ 26,350
         
Harsco Infrastructure  242,569  (242,098)  229,287  (6,065)
         
Harsco Rail  66,424  8,063  91,423  13,906
         
Harsco Industrial  95,347  15,901  91,206  16,710
         
General Corporate  --  (13,279)  --  (506)
         
Consolidated Totals  $ 740,045  $ (208,377)  $ 756,783  $ 50,395
         
         
  Nine Months Ended
September 30, 2013
Nine Months Ended
September 30, 2012
         
(In thousands)
Revenues
Operating
Income (Loss)

Revenues
Operating
Income (Loss)
         
Harsco Metals & Minerals  $ 1,009,175  $ 66,857  $ 1,069,741  $ 79,662
         
Harsco Infrastructure  709,800  (256,342)  701,829  (83,956)
         
Harsco Rail  216,636  27,554  239,098  35,272
         
Harsco Industrial  279,565  48,152  269,025  47,663
         
General Corporate  --  (17,966)  --  (6,294)
         
Consolidated Totals  $ 2,215,176  $ (131,745)  $ 2,279,693  $ 72,347
 
 
 
HARSCO CORPORATION
RECONCILIATION OF DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS (Unaudited)
     
  Three Months Ended
September 30
Nine Months Ended
September 30
         
(In thousands) 2013 2012 2013 2012
         
Diluted earnings (loss) per share from continuing operations, as reported  $ (2.89)  $ 0.32  $ (2.49)  $ 0.13
--  Long-lived asset impairment charge (a)   2.79  --  2.79  --
--  Harsco Infrastructure Segment sale transaction costs (b)  0.11  --  0.11  --
--  Depreciation expense reduction on Harsco Infrastructure Segment assets classified as held-for-sale (c)  (0.04)  --  (0.04)  --
-- Non-cash tax impact of Harsco Infrastructure Segment sale (d)  0.24  --  0.24  --
-- Harsco 2011/2012 Restructuring Program charge (e)  --  0.10  --  0.84
-- Gains associated with exited countries (f)  --  (0.04)  --  (0.10)
-- Former CEO separation expense (g)  --  --  --  0.04
 -- Gains on pension curtailment (h)  --  --  --  (0.02)
         
Adjusted diluted earnings per share from continuing operations  $ 0.20 (i)  $ 0.39 (i)  $ 0.60 (i)  $ 0.89
         
(a)   Long-lived asset impairment charge resulting from the announced sale of the Harsco Infrastructure Segment (3Q 2013 $241.3 million pre-tax).
(b)   Harsco Infrastructure Segment sale transaction costs recorded as Corporate expenses (3Q 2013 $12.4 million pre-tax).
(c)   Depreciation expense reduction resulting from classification of Harsco Infrastructure Segment assets as held-for-sale (3Q 2013 $3.4 million pre-tax).
(d)   Non-cash tax impact of Harsco Infrastructure Segment sale – undistributed earnings of subsidiaries and deferred tax valuation allowance (3Q 2013 $19.2 million).
(e)   Charges resulting from the Harsco 2011/2012 Restructuring Program in the Harsco Infrastructure Segment  (3Q 2012 $7.7 million pre-tax; 9 months 2012 $71.7 million pre-tax) and the Harsco Metals & Minerals Segment (3Q 2012 $0.7 million pre-tax; 9 months 2012 $1.4 million pre-tax).
(f)   Non-cash gains related to the closure of certain European operations in the Harsco Infrastructure Segment (3Q 2012 $4.2 million pre-tax; 9 months 2012 $10.9 million).
(g)   Separation expense for former CEO (1Q 2012 $4.1 million pre-tax).
(h)   Pension curtailment gains in the Harsco Metals & Minerals Segment (1Q 2012 $1.7 million pre-tax).
(i)   Does not total due to rounding.
         
The Company's management believes diluted earnings per share from continuing operations excluding special items, a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company's historical and future prospects. Exclusion of special items permits evaluation and comparison of results for the Company's core business operations, and it is on this basis that management internally assesses the Company's performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
 
 
 
HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT EXCLUDING SPECIAL ITEMS (a) (Unaudited)
(In thousands)
             
  Harsco
Metals &
Minerals

Harsco
Infrastructure

Harsco
Rail

Harsco
Industrial


Corporate

Consolidated
Totals
Three Months Ended September 30, 2013            
Operating income (loss), excluding special items  $ 23,036  $ (4,156)  $ 8,063  $ 15,901  $ (925)  $ 41,919
Revenues, as reported  $ 335,705  $ 242,569  $ 66,424  $ 95,347  $ --  $ 740,045
Operating margin %, excluding special items 6.9% (1.7)% 12.1% 16.7%   5.7 %
             
             
Three Months Ended September 30, 2012            
             
Operating income (loss), excluding special items  $ 27,090  $ (2,532)  $ 13,906  $ 16,710  $ (477)  $ 54,697
Revenues, as reported  $ 344,867  $ 229,287  $ 91,423  $ 91,206  $ --  $ 756,783
Operating margin %, excluding special items 7.9% (1.1)% 15.2% 18.3%   7.2%
             
             
 
 
 
Harsco
Metals &
Minerals

Harsco
Infrastructure

Harsco
Rail

Harsco
Industrial


Corporate

Consolidated
Totals
Nine Months Ended September 30, 2013            
Operating income (loss), excluding special items  $ 66,857  $ (18,400)  $ 27,554  $ 48,152  $ (5,612)  $ 118,551
Revenues, as reported  $ 1,009,175  $ 709,800  $ 216,636  $ 279,565  $ --  $ 2,215,176
Operating margin %, excluding special items 6.6% (2.6)% 12.7% 17.2%   5.4%
             
             
Nine Months Ended September 30, 2012            
             
Operating income (loss), excluding special items  $ 79,393  $ (23,183)  $ 35,339  $ 47,663  $ (1,799)  $ 137,413
Revenues, as reported  $ 1,069,741  $ 701,829  $ 239,098  $ 269,025  $ --  $ 2,279,693
Operating margin %, excluding special items 7.4% (3.3)% 14.8% 17.7%   6.0%
(a)  The Company's management believes operating margin excluding special items, a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company's historical and future prospects. Exclusion of special items permits evaluation and comparison of results for the Company's core business operations, and it is on this basis that management internally assesses the Company's performance, both on a consolidated basis and at the segment level. 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 OPERATING INCOME (LOSS) BY SEGMENT EXCLUDING SPECIAL ITEMS (a) (Unaudited)
(In thousands)
             
  Harsco
Metals &
Minerals

Harsco
Infrastructure

Harsco
Rail

Harsco
Industrial


Corporate

Consolidated
Totals
Three Months Ended September 30, 2013            
             
Operating income (loss), as reported  $ 23,036  $ (242,098)  $ 8,063  $ 15,901  $ (13,279)  $ (208,377)
- Long-lived asset impairment charge  --  241,323  --  --  --  241,323
- Harsco Infrastructure Segment sale transaction costs  --  --  --  --  12,354  12,354
- Depreciation expense reduction on Harsco Infrastructure Segment assets classified as held-for-sale  --  (3,381)  --  --  --  (3,381)
Operating income (loss), excluding special items  $ 23,036  $ (4,156)  $ 8,063  $ 15,901  $ (925)  $ 41,919
Revenues, as reported  $ 335,705  $ 242,569  $ 66,424  $ 95,347  $ --  $ 740,045
             
Three Months Ended September 30, 2012            
             
Operating income (loss), as reported  $ 26,350  $ (6,065)  $ 13,906  $ 16,710  $ (506)  $ 50,395
- Harsco 2011/2012 Restructuring Program charge  740  7,685  --  --  29  8,454
- Gains associated with exited countries  --  (4,152)  --  --  --  (4,152)
Operating income (loss), excluding special items  $ 27,090  $ (2,532)  $ 13,906  $ 16,710  $ (477)  $ 54,697
Revenues, as reported  $ 344,867  $ 229,287  $ 91,423  $ 91,206  $ --  $ 756,783
             
             
  Harsco
Metals &
Minerals

Harsco
Infrastructure

Harsco

Rail

Harsco
Industrial


Corporate

Consolidated
Totals
Nine Months Ended September 30, 2013            
             
Operating income (loss), as reported  $ 66,857  $ (256,342)  $ 27,554  $ 48,152  $ (17,966)  $ (131,745)
- Long-lived asset impairment charge  --  241,323  --  --  --  241,323
- Harsco Infrastructure Segment sale transaction costs  --  --  --  --  12,354  12,354
- Depreciation expense reduction on Harsco Infrastructure Segment assets classified as held-for-sale  --  (3,381)  --  --  --  (3,381)
Operating income (loss), excluding special items  $ 66,857  $ (18,400)  $ 27,554  $ 48,152  $ (5,612)  $ 118,551
Revenues, as reported  $ 1,009,175  $ 709,800  $ 216,636  $ 279,565  $ --  $ 2,215,176
             
Nine Months Ended September 30, 2012            
             
Operating income (loss), as reported  $ 79,662  $ (83,956)  $ 35,272  $ 47,663  $ (6,294)  $ 72,347
- Harsco 2011/2012 Restructuring Program charge  1,447  71,679  67  --  370  73,563
- Gains associated with exited countries  --  (10,906)  --  --  --   (10,906)
- Former CEO separation expense  --  --  --  --  4,125  4,125
- Gains on pension curtailment  (1,716)  --  --  --  --  (1,716)
Operating income (loss), excluding special items  $ 79,393  $ (23,183)  $ 35,339  $ 47,663  $ (1,799)  $ 137,413
Revenues, as reported  $ 1,069,741  $ 701,829  $ 239,098  $ 269,025  $ --  $ 2,279,693
(a) The Company's management believes operating income excluding special items, a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company's historical and future prospects. Exclusion of special items permits evaluation and comparison of results for the Company's core business operations, and it is on this basis that management internally assesses the Company's performance, both on a consolidated basis and at the segment level. 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
FREE CASH FLOW (a) (Unaudited)
     
  Three Months Ended
September 30
Nine Months Ended
September 30
(In thousands) 2013 2012 2013 2012
Net cash provided by operating activities  $ 107,718  $ 75,622  $ 164,087  $ 111,369
Less maintenance capital expenditures (b)  (24,253)  (28,508)  (90,390)  (97,011)
Less growth capital expenditures (c)  (37,262)  (36,417)  (91,316)  (75,759)
Plus capital expenditures for strategic ventures (d)  576  4,952  5,340  9,216
Plus total proceeds from sales of assets (e)  2,094  6,316  16,947  42,889
Free Cash Flow  $ 48,873  $ 21,965  $ 4,668  $ (9,296)
(a)   The Company's management believes that free cash flow, a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds. It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements, are not deducted from the measure. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
(b)   Maintenance capital expenditures are necessary to sustain the Company's current revenue streams and include contract renewals.
(c)   Growth capital expenditures, for which management has discretion as to amount, timing and geographic placement, expand the Company's revenue base and create additional future cash flow.
(d)   Capital expenditures for strategic ventures represent the partner's share of capital expenditures in certain ventures consolidated in the Company's financial statements.
(e)   Asset sales are a normal part of the business model, primarily for the Harsco Infrastructure and Harsco Metals & Minerals Segments.
 
 
 
HARSCO CORPORATION
ADJUSTED RETURN ON INVESTED CAPITAL (a)
   
  Trailing Twelve Months
for Period Ended
September 30
(in thousands) 2013 2012
Net loss, as reported  $ (466,971)  $ (82,722)
Special items:    
--  Long-lived asset impairment charge  241,323  --
--  Harsco Infrastructure Segment sale transaction costs  12,354  --
--  Depreciation expense reduction Harsco Infrastructure Segment assets  (3,381)  --
-- Goodwill impairment charge – Harsco Infrastructure Segment  265,038  --
-- Harsco 2011/2012 Restructuring Program charges  20,935  174,343
-- Charges to exit Harsco Metals & Minerals Segment contract  7,645  --
-- Gains associated with exited countries  --  (10,906)
-- Former CEO separation expense  --  4,125
-- Gains on pension curtailment  --  (1,716)
-- Taxes on above special items  (25,236)  (19,993)
--  Tax impact of Infrastructure Segment sale on undistributed earnings of subsidiaries and valuation allowance  19,189  --
-- Non-cash tax charge against U.K. deferred tax assets  --  36,833
Adjusted net income  $ 70,896  $ 99,964
     
Total equity  $ 605,333  $ 1,198,589
Plus total debt  1,069,188  968,501
Total capital  $ 1,674,521  $ 2,167,090
     
Adjusted return on invested capital  4.2%  4.6%
     
(a)   The Company's management believes return on invested capital excluding special items, a non-U.S. GAAP financial measure, is meaningful in evaluating the efficiency and effectiveness of the Company's long-term capital investments. Exclusion of special items permits evaluation and comparison of results for the Company's core business operations, and it is on this basis that management internally assesses the Company's performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
CONTACT: Investor Contact
         Jim Jacobson
         717.612.5628
         jjacobson@harsco.com
         
         Media Contact
         Kenneth D. Julian
         717.730.3683
         kjulian@harsco.com

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