Exhibit 99.1

 

 

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

Harsco Announces Launch of Private Offering of $500 Million of

Senior Unsecured Notes Due 2027

CAMP HILL, PA – June  10, 2019 – Harsco Corporation (NYSE: HSC) announced today that it intends to offer, subject to market and other conditions, $500 million in aggregate principal amount of senior unsecured notes due 2027 (the “Notes”) in a private offering (the “Private Offering”) that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).

Harsco intends to use the net proceeds from the Private Offering to fund, together with borrowings under its revolving credit facility, the purchase price of the previously announced pending acquisition (the “Acquisition”) of CEHI Acquisition Corporation (“Clean Earth”). The closing of the Private Offering is contingent upon the closing of the Acquisition.

The Notes will be guaranteed on a senior unsecured basis, jointly and severally, by all of Harsco’s wholly owned U.S. subsidiaries that guarantee its senior secured credit facility.

The Notes will be offered and sold to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons outside the United States pursuant to Regulation S under the Securities Act.

The Notes have not been and will not be registered under the Securities Act or applicable state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws.

This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the Notes or any other securities and shall not constitute an offer, solicitation or sale in any state or jurisdiction in which such offer, solicitation, or sale is unlawful.

Harsco is also seeking, concurrently with the Private Offering, to amend the credit agreement governing its senior secured credit facility that would (i) increase its revolving credit facility by $200 million, (ii) extend the maturity of its revolving credit facility to June 2024, (iii) reduce the interest rate margins and commitment fees applicable to its revolving credit loans, and (iv) adjust certain covenants (the “Amendment”). The closing of each of the Private Offering and the Acquisition is not conditioned upon the consummation of the Amendment and there can be no assurance that Harsco will be able to enter into the Amendment to amend any of the foregoing terms. There can be no assurance that the Harsco will consummate either of the Private Offering or the Amendment on favorable terms or at all.

 

 

 

 

Exhibit 99.2

 

BASIS OF PRESENTATION

 

Unless otherwise indicated or the context otherwise requires, references herein to “we,” “our,” “us,” “the Company” and “Harsco” refer to Harsco Corporation and each of its consolidated subsidiaries, and the “Issuer” refers to Harsco Corporation and not any of its subsidiaries.

 

On May 8, 2019, we, solely in our capacity as guarantor, and Calrissian Holdings, LLC, a Delaware limited liability company and our wholly owned subsidiary (“CH LLC”), entered into a stock purchase agreement (the “Acquisition Agreement”) with CEHI Acquisition Corporation, a Delaware corporation (“Clean Earth”), the holders of stock and options in Clean Earth (the “Sellers”) and Compass Group Diversified Holdings LLC, a Delaware limited liability company (the “Sellers’ Representative”), in its capacity as representative of the Sellers (the “Acquisition”). Also on May 8, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) to sell the Air-X-Changers business (“Air-X-Changers”). Our audited annual consolidated financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 have not been retroactively revised to reflect the Acquisition or the Asset Sale. Similarly our unaudited consolidated financial statements as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 have not been retroactively revised to reflect the Acquisition or the Asset Sale.

 

USE OF NON-GAAP MEASURES

 

EBITDA, Adjusted EBITDA, Further Adjusted EBITDA, Free Cash Flow and Free Cash Flow before growth capital expenditures as presented herein, are examples of measures of performance not defined under U.S. generally accepted accounting principles (“U.S. GAAP”). EBITDA represents operating performance based on income from continuing operations before interest expense, net, income tax expense (benefit), and depreciation and amortization as well as equity in (income) loss of unconsolidated entities, net, change in fair value to the unit adjustment liability and loss on dilution and sale of equity method investment, loss on early extinguishment of debt, and defined benefit pension (income) expense. Adjusted EBITDA is calculated using EBITDA adjusted further by (i) eliminating items of non-operating income or expense, (ii) eliminating the impact of certain non-cash and other items that are included in net income for the period that we do not consider indicative of our ongoing operating performance and (iii) eliminating certain unusual items impacting results in a particular period to more accurately reflect management’s view of the recurring profitability of the business. Further Adjusted EBITDA is calculated using Adjusted EBITDA adjusted further to give pro forma effect to the Transactions (as defined below) and prospective synergies. Free Cash Flow is calculated as Net cash provided by operating activities less capital expenditures and plus capital expenditures for strategic ventures and total proceeds from sales of assets. Free Cash Flow before growth capital expenditures is defined as Net cash provided by operating activities, less capital expenditures, plus capital expenditures for strategic ventures, plus total proceeds from sales of assets, plus growth capital expenditures.

 

You are encouraged to evaluate these measures and the reasons we consider them appropriate for supplemental analysis. Additionally, certain of the adjustments included to arrive at Further Adjusted EBITDA are based on projections and estimates of expected costs related to the Transactions, cost savings and synergies and are forward-looking in nature. In evaluating EBITDA, Adjusted EBITDA, Further Adjusted EBITDA, Free Cash Flow and Free Cash Flow before growth capital expenditures you should be aware that in the future we may incur expenses that are the same as or similar to some of the included adjustments. Our presentation of EBITDA, Adjusted EBITDA, Further Adjusted EBITDA and Free Cash Flow and Free Cash Flow before growth capital expenditures

 

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should not be construed as an inference that our future results will be unaffected by any of the adjusted items, or that our projections and estimates will be realized in their entirety or at all.

 

We believe that each of EBITDA, Adjusted EBITDA, Further Adjusted EBITDA, Free Cash Flow and Free Cash Flow before growth capital expenditures as described herein enhances an investor’s understanding of our financial performance and provides an overall understanding of our historical and future prospects. We believe each of these measures is a useful financial metric to assess our operating performance from period to period and we use these measures for business planning purposes. Our management also believes EBITDA, Adjusted EBITDA, Further Adjusted EBITDA, Free Cash Flow and Free Cash Flow before growth capital expenditures are useful to investors because they and similar measures are frequently used by securities analysts, investors, ratings agencies and other interested parties to evaluate our competitors and to measure the ability of companies to service their debt. In addition, we believe each of these measures permits evaluation and comparison of results for our core business operations, and it is on this basis that management internally assesses our performance. Non-GAAP financial measures should not be construed as being more important than comparable U.S. GAAP measures.

 

Our management believes that Free Cash Flow, which is a non-GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds for planning and performance evaluation purposes. Our management also believes that Free Cash Flow before growth capital expenditures, which is a non-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 have limitations as analytical tools, and you should not consider them in isolation or as alternatives to cash flow from operating activities or any other liquidity measure determined in accordance with U.S. GAAP. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. In addition, in evaluating Free Cash Flow, you should be aware that in the future, we may incur expenditures similar to the adjustments in the presentation of Free Cash Flow. In addition, these measures may not be comparable to similarly titled measures used by peer companies or across different industries.

 

Moreover, under the credit agreement (the “Credit Agreement”) governing our revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility” and together with the Revolving Credit Facility, the “Senior Secured Credit Facility”), and the agreement that will govern the private financing transaction, our ability to engage in certain activities, such as incurring certain additional indebtedness, making certain investments, and paying certain dividends, is tied to ratios based on Adjusted EBITDA (which is defined as “Consolidated EBITDA” in the Credit Agreement and “EBITDA” in the agreement that will govern the private financing transaction). These definitions may vary from Adjusted EBITDA and Further Adjusted EBITDA that we present herein.

 

Because not all companies use identical calculations, our presentation of EBITDA, Adjusted EBITDA and Further Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. EBITDA, Adjusted EBITDA and Further Adjusted EBITDA have important limitations as analytical tools, and investors should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. For example, EBITDA, Adjusted EBITDA and Further Adjusted EBITDA:

 

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exclude certain tax obligations that may represent a reduction in cash available to us;

 

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do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

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do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

 

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do not reflect changes in, or cash requirements for, our working capital needs; and

 

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do not reflect the significant interest expense, or the cash requirements, necessary to service our debt interest and principal payments.

 

We define Clean Earth EBITDA as net income (loss) before interest expense, income (expense) for income taxes, and depreciation and amortization (“Clean Earth EBITDA”), which is further adjusted for certain other items (“Clean Earth Adjusted EBITDA”). We define Clean Earth Further Adjusted EBITDA as Clean Earth Adjusted EBITDA, which is further adjusted for certain other items, including costs related to facility closures (“Clean Earth Further Adjusted EBITDA”). Each of Clean Earth EBITDA, Clean Earth Adjusted EBITDA and Clean Earth Further Adjusted EBITDA is not defined under U.S. GAAP, is not a measure of operating income, operating performance, or liquidity presented in accordance with U.S. GAAP, and is subject to important limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. We present Clean Earth EBITDA, Clean Earth Adjusted EBITDA and Clean Earth Further Adjusted EBITDA in order to provide supplemental information that we consider relevant for the readers of its financial statements, and such information is not meant to replace or supersede U.S. GAAP measures. Because not all companies use identical calculations, our presentation of Clean Earth EBITDA, Clean Earth Adjusted EBITDA and Clean Earth Further Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Investors should be aware that Clean Earth EBITDA, Clean Earth Adjusted EBITDA and Clean Earth Further Adjusted EBITDA may not be entirely comparable to our presentation of EBITDA and Adjusted EBITDA.

 

We define Clean Earth Free Cash Flow before growth capital expenditures as Net cash provided by operating activities less capital expenditures, plus total proceeds from asset sales plus growth capital expenditures. See the discussion above regarding our use of Free Cash Flow.

 

We present Adjusted EBITDA for Air-X-Changers herein, which is a non-GAAP measure. We define Adjusted EBITDA for Air-X-Changers as income from continuing operations of Air-X-Changers as adjusted for income tax expenses, interest expense, depreciation and amortization, stock compensation and other adjustments. We present Adjusted EBITDA for Air-X-Changers in order to provide supplemental information that we consider relevant in presenting our Further Adjusted EBITDA to reflect the Asset Sale.

 

FORWARD-LOOKING STATEMENTS

 

This document contains forward-looking statements that reflect our current views with respect to, among other things, our operations and financial performance, and include statements concerning the Acquisition and the anticipated benefits of the Acquisition, the incurrence of additional indebtedness that we intend to obtain to finance the purchase price of the Acquisition, as well as the consummation of the Asset Sale and the anticipated benefits of the Asset Sale. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual timing, outcomes, or results to differ materially from those indicated in these statements.

 

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Factors that could cause actual results, developments and business decisions to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to:

 

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changes in the worldwide business environment in which we operate, including general economic conditions;

 

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unforeseen business disruptions in one or more of the many countries in which we operate due to political instability, civil disobedience, armed hostilities, public health issues or other calamities;

 

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the seasonal nature of our business;

 

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the financial condition of our customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability;

 

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the outcome of any disputes with customers, contractors and subcontractors;

 

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changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs;

 

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market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies;

 

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changes in governmental laws and regulations, including environmental, occupational health and safety, tax and import tariff standards;

 

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changes in the performance of equity and bond markets that could affect, among other things, the valuation of the assets in our pension plans and the accounting for pension assets, liabilities and expenses;

 

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the integration of our strategic acquisitions;

 

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our ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all;

 

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disruptions associated with labor disputes and increased operating costs associated with union organization;

 

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failure to effectively prevent, detect or recover from breaches in our cybersecurity infrastructure;

 

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our inability or failure to protect our intellectual property rights from infringement in one or more of the many countries in which we operate;

 

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implementation of environmental remediation matters, particularly with regards to Clean Earth;

 

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risk and uncertainty associated with intangible assets;

 

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the amount and timing of repurchases of our common stock, if any;

 

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the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreements entered into for the Acquisition and the Asset Sale;

 

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failure to realize the growth opportunities and operational synergies that are anticipated from the Acquisition, and/or the costs of integrating Clean Earth into our business may exceed our expectations;

 

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the pendency of the Acquisition and the Asset Sale could adversely affect our business, financial results and operations;

 

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our actual financial position and results of operations may differ materially from the unaudited pro forma financial information;

 

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our ability to obtain or renew operating permits or license agreements of Clean Earth;

 

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failure to retain key management and employees of Clean Earth and its subsidiaries;

 

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risks related to our indebtedness;

 

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risks related to the private financing transaction and to similar private financing transactions generally;

 

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potential severe volatility in the capital markets and the impact on our costs to obtain debt financing as may be necessary to consummate the Acquisition; and

 

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other risk factors listed herein and from time to time in our SEC reports.

 

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, particularly the Acquisition and the Asset Sale, which is based in part on this analysis, will be successful. The factors above should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein. All forward-looking statements included herein apply only as of the date hereof or as of the date they were made and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

 

SUMMARY

 

This summary highlights selected information about us and does not contain all information that you should consider. You should read this document together with the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2018 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2019 and the Unaudited Pro Forma Financial Statements.

 

OUR COMPANY

 

We are a diversified, multinational provider of industrial environmental services and engineered products serving global industries that are fundamental to worldwide economic growth and infrastructure development.

 

Historically, our operations have consisted of three operating segments: Harsco Metals & Minerals, Harsco Industrial and Harsco Rail. As described herein, on May 8, 2019, we entered into a definitive agreement to acquire Clean Earth and, upon consummation of the Acquisition, Clean Earth will be added as a fourth operating segment, which we refer to as Harsco Clean Earth herein. Concurrently with the announcement of the Acquisition, we also announced that we had entered into a definitive agreement to sell Air-X-Changers, a business in Harsco Industrial, to Chart Industries, Inc. (the “Asset Sale”). See “—Recent Developments—Acquisition of Clean Earth” and “—Recent Developments—Sale of Air-X-Changers” for additional information on these transactions. References

 

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herein to pro forma financial information give effect to the private debt financing and borrowings under our Revolving Credit Facility, as well as the use of proceeds therefrom, including the consummation of each of the Acquisition and the Asset Sale and related transactions and the payment of fees and expenses related thereto (collectively, the “Transactions”). In addition, on May 30, 2019, we announced that our Harsco Metals & Minerals segment was rebranded Harsco Environmental and it is referred to as such herein.

 

In general, we believe that each of our existing segments and Harsco Clean Earth are among the global market leaders in their respective sectors.

 

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Harsco Environmental : provides on-site environmental services including resource recovery from steel and metal manufacturing, and material logistics; provides value added environmental solutions for industrial byproducts; extracts high-value metallic content from stainless steel by-products and specializes in the development of minerals technologies for commercial applications; sells road base materials and manufactures high performance asphalt products.

 

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Harsco Clean Earth : provides environmental services for a variety of contaminated materials including soils, dredged material, and hazardous waste; analyzes, treats, documents and recycles waste streams generated in multiple end markets such as utilities, infrastructure, chemicals, aerospace and defense, non-public and private development, medical, industrial and dredging.

 

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Harsco Rail : provides highly engineered maintenance equipment, after-market parts and safety and diagnostic systems which support railroad and transit customers worldwide.

 

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Harsco Industrial : supplies custom-engineered and manufactured air-cooled heat exchangers that support the processing and distribution of natural gas and downstream refined products; manufactures a full range of metal bar grating configurations, used mainly in industrial flooring, as well as safety and security applications; and also manufactures energy-efficient heat transfer products such as boilers and water heaters, for various commercial and industrial applications.

 

As of March 31, 2019, we employed approximately 10,400 employees across our various locations which span approximately 30 countries. Following the consummation of the Acquisition and the Asset Sale, we do not expect the number of our employees to change significantly.

 

The diversification of our revenues on a segment and geographical basis, on a pro forma basis after giving effect to the Transactions, is outlined below for the year ended December 31, 2018.

 

Pro Forma Revenues by Operating Segment (2018)		Pro Forma Revenues by Geography (2018)

 

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For the twelve months ended March 31, 2019, on a pro forma basis after giving effect to the Transactions, we had total revenues of $1,794.9 million, income from continuing operations of $116.3 million, and Further Adjusted EBITDA of $331.4 million. See “—Summary Unaudited Pro Forma and Historical Consolidated Financial Information—Summary Unaudited Pro Forma Consolidated Financial Information” for a reconciliation of income from continuing operations to Further Adjusted EBITDA.

 

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OUR OPERATING SEGMENTS

 

Harsco Environmental

 

Harsco Environmental (formerly known as Harsco Metals & Minerals) is one of the world’s largest providers of on-site environmental services including resource recovery from steel and metal manufacturing, and material logistics in approximately 30 countries, with the largest operations focused in the United States, France, the United Kingdom, Brazil and China. These operations are linked to customer operations and the performance of services enables the customer to focus on their core business. We have approximately 70 customers globally and operate across approximately 145 sites, some of which span multiple long-term contracts. We operate generally under long-term contracts with high renewal rates, and in many cases the segment has operated at a customer location for several decades.

 

We also provide value added environmental solutions for industrial byproducts. For example, we produce industrial abrasives and roofing granules from power-plant utility coal slag at several locations throughout the United States. Our BLACK BEAUTY ^® abrasives are used for industrial surface preparation, such as rust removal and cleaning of bridges, ship hulls and various structures. Roofing granules are sold to residential roofing shingle manufacturers in the United States, primarily for the replacement roofing market. This business is one of the largest U.S. producers of slag abrasives and residential roofing granules. Additionally, we are able to extract high-value metallic content from stainless steel by-products and specialize in the development of minerals technologies for commercial applications, including agriculture fertilizers, by providing over 40 services across the steel production value chain. We also sell road base materials and manufacture high performance asphalt products, branded under SteelPhalt, for the U.K. road-making market. We have also undertaken several initiatives focused on developing greater environmental sustainability through the recovery of resources from byproducts and related streams.

 

The principal business drivers of Harsco Environmental are global metals production and capacity utilization; outsourcing of services by metals producers; demand for high-value specialty steel and ferro alloys; demand for environmental solutions for metals and minerals byproduct streams; demand for industrial and infrastructure surface preparation and restoration; demand for residential roofing shingles; and demand for road making materials. The key competitive factors in this segment are innovative resource recovery solutions, significant industry experience, technology, safety performance, and service quality. Harsco Environmental competes principally with a number of privately-held businesses for services outsourced by customers. Additionally, due to the nature of this segment’s services, it encounters a certain degree of competition from customers’ desire to perform similar services themselves instead of using an external solution.

 

As of March 31, 2019, our metals services contracts had estimated contracted revenues of $3.2 billion at current production levels, compared to $3.1 billion and $2.8 billion at December 31, 2018 and 2017, respectively. Since 2016, we added 30 new contracts with an average term of 10 years, creating additional expected future revenue of approximately $1.1 billion. Our operations are geographically diversified, for the year ended December 31, 2018, approximately 28% of the segment’s revenues originated in North America, 37% in Western Europe, 14% in Latin America, 14% in Asia Pacific, 5% in the Middle East and Africa, and 3% in Eastern Europe.

 

Harsco Clean Earth

 

Harsco Clean Earth, which will become our fourth operating segment once the Acquisition is consummated, is one of the largest specialty waste processing companies in the United States, providing processing and beneficial reuse solutions for hazardous wastes, contaminated materials, and

 

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dredged volumes. We analyze, treat, document and recycle waste streams generated across many diverse end markets in the infrastructure, industrial, commercial and institutional sectors. Harsco Clean Earth is a leader in the hazardous waste processing market, and is the largest operator in the contaminated materials and dredged material management market, operating 27 permitted facilities in the United States. We estimate that the U.S. addressable market for Harsco Clean Earth is approximately $8 billion, comprised of 63% hazardous waste, 33% contaminated materials and 4% dredged material management at December 31, 2018. We currently maintain a portfolio of more than 200 scarce and difficult-to-replicate permits with a 100% permit renewal success rate, to date. This operating segment employed approximately 600 hourly and salaried employees located throughout the United States at December 31, 2018.

 

Harsco Clean Earth operates across three business lines:

 

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Hazardous Waste business line provides tracking, testing, processing, recycling, and disposal services for hazardous waste streams, which accounted for 40% of Harsco Clean Earth revenues for the year ended December 31, 2018. The segment offers a wide-range of unique treatment and disposal offerings for hazardous waste across nine treatment, storage, and disposal facilities (“TSDFs”) and 220 process codes throughout the United States.

 

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Contaminated Materials business line treats contaminated soil generated from industrial activities representing 51% of revenues for the year ended December 31, 2018. Harsco Clean Earth has 25 years of experience treating contaminated materials for recycling and beneficial reuse. Harsco Clean Earth processes and recycles approximately four million tons of contaminated materials per year across 14 facilities.

 

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The Dredged material business line treats dredged material from both maintenance activities and environmental-driven projects and represented 9% of total revenues for the year ended December 31, 2018. Harsco Clean Earth is the largest dredge material processing and beneficial reuse company in the New York / New Jersey Harbor.

 

This segment provides services to a variety of customers and handles unique materials, including industrial solvents, oncology drugs, lab packs and mercury devices among others, which often require a range of custom solutions. This segment provides its core material treatment capabilities and complementary services. In addition to its treatment offerings, this segment also provide turnkey services that include proper identification of waste services, management of all transportation and logistics, appropriate testing and analytics, manifesting/documentation and environmentally compliant placement of treated materials at backend locations.

 

Harsco Clean Earth serves approximately 1,700 customers at more than 5,000 discrete sites. We maintain strong relationships with customers at various levels of the decision and supply chain, including public and private corporations and property owners, as well as environmental consultants, brokers, construction firms, municipalities, and regulatory agencies, among others. Harsco Clean Earth’s top 10 customers accounted for approximately 20% of its net sales for the year ended December 31, 2018.

 

As of March 31, 2019, Harsco Clean Earth’s Contaminated Materials business line had a backlog of approximately 2.9 million tons. Historically, Harsco Clean Earth’s backlog has represented over two-thirds of a full-year processing cycle. All of Harsco Clean Earth’s revenues in 2018 was generated in North America. For the year ended December 31, 2018, approximately 51% of Harsco Clean Earth’s revenues were generated by its contaminated materials business line, 40% were generated by its hazardous waste business line and 9% were generated by its dredged material business line.

 

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Harsco Rail

 

Harsco Rail is a global provider of equipment, after-market parts and services for the maintenance, repair and construction of railway track. We manufacture and sell highly-engineered railway track maintenance equipment, collision avoidance and warning systems to support passenger, rail worker and pedestrian safety, and measurement and diagnostic technologies that support railway maintenance programs. These products are produced primarily in the United States for customers throughout the world. Additionally, this segment provides railway track maintenance services principally in the United States and the United Kingdom. For the year ended December 31, 2018, approximately 40% of this segment’s revenues was generated by its original equipment business line, 45% was generated by its aftermarket sales business line, 10% was generated by its contracting solutions business line and 5% was generated by its Protran technology business line.

 

We believe we are differentiated from our competitors, primarily privately-held global businesses as well as certain regional competitors, with our product quality, technology and high level of customer service. Approximately 73% and 17% of the segment’s revenues originated in North America and Western Europe, respectively, for the year ended December 31, 2018. Harsco Rail is a leader in railway track monitoring, service and equipment in North America.

 

Harsco Industrial

 

Harsco Industrial comprises the following three manufacturing businesses principally located in the United States: Harsco Industrial Air-X-Changers; Harsco Industrial IKG; and Harsco Industrial Patterson-Kelly. On May 9, 2019, we announced that we had entered into a definitive agreement to sell Harsco Industrial Air-X-Changers. See “—Recent Developments—Sale of Air-X-Changers” for additional information on the sale of Air-X-Changers. On the same date, we also announced our intent to divest Harsco Industrial IKG and Harsco Industrial Patterson-Kelley, the other two businesses of this segment. We expect that any such divestiture could occur within 12 to 24 months.

 

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Harsco Industrial Air-X-Changers is a leading supplier of custom-engineered and manufactured air-cooled heat exchangers for the natural gas compression and processing industry as well as the refining and petrochemical industry in the United States. Harsco Industrial Air-X-Changers’ heat exchangers are the primary apparatus used to condition natural gas during recovery, compression and transportation from underground reserves through major pipeline distribution channels.

 

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Harsco Industrial IKG is a leading producer of steel grating in North America and manufactures a varied line of industrial grating and fencing products at several plants in the United States and an international plant located in Mexico. These products include a full range of metal bar grating configurations, which are used mainly in industrial flooring, as well as safety and security applications in various industries.

 

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Harsco Industrial Patterson-Kelley is a leading manufacturer in North America of energy-efficient heat transfer products such as boilers and water heaters for commercial and institutional applications.

 

We primarily compete with U.S.-based manufacturers of similar products and we believe our product quality and durability, technology and energy-efficiency differentiates us from our competitors. Approximately 95% of the segment’s revenues originated in North America for the year ended December 31, 2018.

 

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COMPETITIVE STRENGTHS

 

Leading Provider of Environmental Solutions, Rail and Industrial Products

 

We believe our acquisition of Clean Earth, when consummated, will make us one of the leading providers of environmental solutions and services across a variety of industrial end markets in the United States. Clean Earth is expected to provide us with scale and a breadth of capabilities in the contaminated materials, hazardous waste, and dredged material markets that are complementary to our Harsco Environmental segment’s environmental solutions and services offerings. We also believe there are potential cross-selling opportunities for existing customers given our expanded service offering. We believe we have a leadership position within Europe, North America, China, India and Latin America and serve approximately 30% of global liquid steel tons volume (excluding China, CIS, Iran, Japan, South Korea, Taiwan and Vietnam). We are a leading global provider of equipment, after-market parts and services for the maintenance, repair and construction of railway track.

 

Creating Tangible Value through the Provision of Mission Critical Services and Products

 

We provide critical services to our customers across all of our operating segments, which perform very different yet essential functions for our customers. Within the Environmental segment, we leverage our operational expertise and industry leading safety capabilities to drive a wide range of on-site services. Following the acquisition of Clean Earth we will expand our environmental service capabilities and expect to realize revenue synergies from this transaction as we leverage our existing customer relationships. Our Harsco Rail segment provides integrated, track solutions that enable railroads to operate at peak efficiency over smooth, precisely aligned track.

 

Diverse Exposures Across Geographies and End-Markets with Long Tenured Customer Base

 

We provide our environmental services and engineered products to a large number of industries in approximately 30 countries, operating in all major geographic regions in the world. We believe our diversity across various business segments, industries and customers limits our business risks. As of March 31, 2019, on a pro forma basis after giving effect to the Transactions, our top ten customers comprised 27% of our total revenues.

 

Within Harsco Environmental, we operate under multi-year contracts with our customers and benefit from a renewal rate over the last five years of approximately 90%. Approximately 80% of our Harsco Environmental revenues are under contract. We have maintained relationships over multiple decades with our top customers such as ArcelorMittal, Tata Steel and Gerdau, some of which we have maintained in excess of 50 years. Likewise, Harsco Clean Earth has had consistently high renewal rates and benefits from operating nine of the approximately 100 TSDFs available in the United States. For the year ended December 31, 2018, on a pro forma basis after giving effect to the Transactions, no customer would have accounted for more than 9% of our total revenues. Accordingly, the loss of any one of our customers is unlikely to have a significant impact.

 

Attractive Fundamentals Across All Operating Segments

 

 

The necessity of the services Harsco Environmental provides and the extensive regulatory framework within which we operate drive a high degree of recurring demand. Regulatory requirements promote high demand for service as customers must manage waste in a timely and compliant manner, which supports the recurring revenue nature of our businesses. Furthermore, customers served by Harsco Environmental have benefited from recent improvements in global steel production. We believe this will contribute to our near-term performance as global growth in steel production and consumption

 

11

increase demand for mill services. We also expect that Harsco Environmental will benefit from new site (contract) contributions and continued operational savings. Additionally, we believe performance will be positively impacted by demand for aluminum dross and scrap processing systems in the near-term.

 

The areas in which Harsco Environmental and Harsco Clean Earth operate have high barriers to entry as permits are scarce and very valuable—no new commercial Resource Conservation Recovery Act (“RCRA”) Part B permits for processing hazardous waste have been issued in over 30 years. The acquisition of Clean Earth allows us to further benefit from the permitting and regulatory considerations that drive our recurring revenue model and stickiness of customers.

 

Harsco Rail has experienced continued improvement in demand for maintenance equipment from North American railroads following a period of decreased demand in recent years. Harsco Rail has also benefited from continued growth, market penetration and investment in foreign markets to increase international equipment sales as well as sales of after-market parts and in our rail safety applications business. As of March 31, 2019, this segment had a backlog of approximately $300 million. Additionally, Harsco Rail has undertaken a number of strategic actions over the past two years to improve manufacturing processes. As previously disclosed, the Company began to consolidate and centralize North American manufacturing and distribution into one facility, allowing for improved efficiency and better service to customers.

 

Recurring Services, Contracts and Backlog Promote Predictable Performance

 

We believe we have a high degree of predictability of our operational and financial performance given our large number of customer contracts and services which are generally tied to recurring volumes or aftermarket and maintenance activities. Within Harsco Environmental, newly awarded customer contracts are typically eight to ten years in duration. Contracts often have favorable characteristics such as protections against early termination or reduction in volumes, as well as significant fixed-fee components which promote stable and recurring earnings and cash flows. Historically, we have enjoyed high renewal rates on these contracts given the nature and quality of our services. Harsco Rail also benefits from long tenured customer relationships, as well as a portion of its services driven by after-market activity and large, installed customer base. Our average relationship with our top ten customers exceeds 25 years.

 

We expect our visibility into future performance to increase following the acquisition of Clean Earth. Hazardous waste generation is voluminous, highly recurring and diversified across many industries and end markets. We believe the proximity of our treatment facilities to our customers, coupled with evolving regulatory standards, is likely to provide us with stable and growing volumes of waste for treatment.

 

Strong Financial Profile, Disciplined Financial Policies and Prudent Leverage

 

We have an attractive financial profile highlighted by our diversified revenue streams across segments and end markets, high degree of revenue visibility including that which is under multi-year contracts, stable operating margins and a favorable cash flow profile.

 

We also have a history of disciplined capital allocation. From 2012 to 2018 we have reduced our net debt balance (prior to deferred financing costs) from approximately $875 million to $551 million, partially through operational and working capital improvements in each of our business segments. We have also historically managed our balance sheet to target net leverage of between 2.0 and 2.5x over the long term. Following the Transactions, we remain committed to operating within this range.

 

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Experienced Management Team

 

Our management team, led by Chairman and Chief Executive Officer Nick Grasberger and Chief Financial Officer Peter Minan, have extensive operational and financial experience with Harsco, as well as deep industry knowledge. Our management team also has prior experience executing strategic transactions and successfully integrating acquisitions. Likewise, the Clean Earth management team, which we expect will continue to manage and operate Harsco Clean Earth following the Acquisition, has many years of industry and operating expertise. Our Company is expected to benefit from the knowledge of both management teams as we build out our environmental services platform and continue our transformation into one of the leading global providers of environmental solutions.

 

OUR BUSINESS STRATEGIES

 

Continue Transformation into One of the Leading Global Providers of Environmental Solutions

 

As a result of the Acquisition, we will gain scale and a breadth of capabilities in the contaminated materials, hazardous waste, and dredge material markets that are complementary to our Harsco Environmental segment’s environmental solutions and services offerings. Clean Earth and our Harsco Environmental segment share a fundamental business philosophy rooted in the beneficial reuse of waste volumes generated by industrial customers. Clean Earth’s markets have significant regulatory barriers to entry with high demand for service capabilities driven by ongoing waste generation and regulatory requirements. Clean Earth’s extensive operating permits and permitted facility footprint will accelerate our expansion into environmental services. The addition of Clean Earth also furthers our goal to reduce cyclicality given the stability of the business and the end markets it serves. After giving effect to the Transactions, including the sale of Air-X-Changers, environmental solutions and services would have comprised nearly 75% of our total revenues for the year ended December 31, 2018.

 

Continue to Expand Through Disciplined Organic Growth and Strategic Acquisitions

 

We will continue to focus on expanding through disciplined organic growth and select acquisitions that will improve our competitive positions in core markets or adjacent market spaces. The addition of Clean Earth significantly increases the overall addressable market opportunity for the combined company. Clean Earth operates in an expanding market driven by tightening environmental regulation at federal, state and local levels; increased public infrastructure spending; growing remediation activity, both by government and private entities; and the increasing pricing of competing disposal alternatives. Industry consolidation also presents a growth opportunity within Clean Earth’s current markets. Together with Clean Earth, we believe we have resources and expertise to capture an increasing share of the specialty waste processing and treatment market. Furthermore, Clean Earth maintains relationships with a widely diversified base of industrial customers across a variety of sector and industry segments. The combined company’s expanded customer base will create potential long-term cross-selling opportunities with customers of our Harsco Environmental segment. Within our Harsco Environmental segment, we continue to invest in growth for new contracts in attractive end markets as well as to expand our applied products business. Within our Harsco Rail segment, we are working on developing new products and expanding its technology business. We also plan to further penetrate new markets within our Harsco Rail segment, namely the spare parts market and various international markets.

 

13

Continue to Focus on Return Based Capital Allocations and Business Portfolio Strategies

 

Through a disciplined focus on generating free cash flow, allocating capital based primarily on return based metrics and business portfolio strategies, we expect to generate returns above our cost of capital with a balanced business portfolio and disciplined financial profile. We have instituted systems and processes which allow us to rigorously track performances across global sites and across numerous service offerings, which we believe will help improve our return on invested capital. In addition, we will continue to focus on the effective and efficient use of working capital, primarily in the form of inventory reduction in all businesses as well as improvements in receivables collection in the Environmental Services business. We will also continue to strive to manage our debt levels to maintain strong credit metrics.

 

14

RECENT DEVELOPMENTS

 

Acquisition of Clean Earth

 

On May 8, 2019, we, solely in our capacity as guarantor to the Acquisition, and CH LLC, our wholly owned subsidiary, entered into the Acquisition Agreement with Clean Earth, the Sellers and Compass Group Diversified Holdings LLC, a Delaware limited liability company, in its capacity as representative of the Sellers. Upon the terms and subject to the conditions set forth in the Acquisition Agreement, CH LLC will acquire all of the issued and outstanding common stock of Clean Earth for a purchase price of $625 million, subject to adjustments, including the working capital and indebtedness balances of Clean Earth at the time the Acquisition is consummated.

 

Acquisition Financing

 

Contemporaneous with entering into the Acquisition Agreement, we entered into a debt commitment letter, dated May 8, 2019, with Goldman Sachs Bank USA and Citigroup Global Markets Inc. (together, the “Commitment Parties”), pursuant to which and upon the terms and subject to the conditions set forth in such letter, the Commitment Parties have agreed to provide a senior unsecured bridge loan facility (the “Bridge Facility”) of up to $500 million in the aggregate for the purpose of providing the financing necessary to fund a portion of the consideration to be paid pursuant to the Acquisition Agreement and related fees, costs and expenses (the “Bridge Loan Commitment”). The Bridge Loan Commitment will be reduced on a dollar-for-dollar basis by 100% of the gross cash proceeds from the private debt financing. Although we do not currently expect to make any borrowings under the Bridge Facility, there can be no assurance that such borrowings will not be made.

 

We intend to use the net proceeds from the private debt financing, together with borrowings under our Revolving Credit Facility (as discussed further below), to pay for the Acquisition consideration and related fees, costs and expenses. The closing of the private debt financing is conditioned on the contemporaneous closing of the Acquisition.

 

We cannot assure you that we will complete the Acquisition or the private debt financing on the terms contemplated the private debt financing or at all.

 

Credit Agreement Amendment

 

Concurrently with the private debt financing, we are seeking to amend our Senior Secured Credit Facility (the “Credit Agreement Amendment”) to, among other things, (i) increase our Revolving Credit Facility by $200 million to $700 million, (ii) extend the maturity of our Revolving Credit Facility to June 2024, (iii) reduce the interest rate margins and commitment fees applicable to our Revolving Credit Facility, and (iv) adjust certain covenants. The consummation of the private debt financing, the Acquisition and the Asset Sale are not conditioned upon the consummation of the Credit Agreement Amendment. There can be no assurance that we will be able to consummate the Credit Agreement Amendment to amend any of the foregoing terms.

 

Sale of Air-X-Changers

 

On May 8, 2019, we entered into the Asset Purchase Agreement with E&C FinFan, Inc. (the “Acquiror”), and Chart Industries, Inc. Upon the terms and subject to the conditions of the Asset Purchase Agreement, we have agreed to sell, and the Acquiror has agreed to acquire, the Air-X-Changers business in our Harsco Industrial segment for aggregate cash consideration of $592 million, which is subject to adjustment based on the working capital balance of Air-X-Changers at the time of the consummation of the Asset Sale, plus the assumption by the Acquiror of the liabilities of Air-X-Changers specified in the Asset Purchase Agreement. The consummation of the Acquisition and the private debt financing are not conditioned on the closing of the Asset Sale.

 

15

The proceeds of the Asset Sale are expected to be used to repay amounts outstanding under the Revolving Credit Facility and the Term Loan Facility and to pay associated transaction fees and expenses, including taxes.

 

16

SUMMARY UNAUDITED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

 

Summary Unaudited Pro Forma Consolidated Financial Information

 

The following summary unaudited pro forma condensed consolidated financial information has been prepared to reflect the Transactions. The following summary unaudited pro forma condensed consolidated statement of operations information gives effect to the Transactions as if they had closed on January 1, 2018. The following summary unaudited pro forma condensed consolidated balance sheet information gives effect to the Transactions as if they had closed on March 31, 2019. We derived the unaudited pro forma condensed consolidated financial information as of and for the twelve months ended March 31, 2019 in the summary table below from, and which should be read together with, our unaudited pro forma condensed consolidated financial statements and related notes included in the Unaudited Pro Forma Financial Statements. The summary unaudited pro forma consolidated financial information for the twelve months ended March 31, 2019 has been calculated by adding the unaudited pro forma condensed consolidated financial statements for the three months ended March 31, 2019 to the unaudited pro forma condensed consolidated financial statements for the year ended December 31, 2018, and then subtracting the unaudited pro forma condensed consolidated financial statements for the three months ended March 31, 2018. The summary unaudited pro forma condensed consolidated financial information is provided for informational purposes only and does not purport to represent what our actual operating results would have been had the Transactions occurred on the dates assumed, nor are they necessarily indicative of our future results after the Transactions. The summary unaudited pro forma condensed consolidated financial information does not reflect the cost of any integration activities or benefits from the Acquisition and the Asset Sale that may be derived, both of which may have a material effect on our consolidated results in periods following completion of the Transactions.

 

		Pro Forma
(dollars in thousands)		Year Ended December 31, 2018				Twelve Months Ended March 31, 2019
		(unaudited)				(unaudited)
Statement of Operations Information:
Harsco Environmental (f/k/a Harsco Metals & Minerals)		$	1,068,304			$	1,064,893
Harsco Industrial			167,555				169,406
Harsco Rail			279,294				288,207
Harsco Clean Earth			266,916				272,327
Harsco Corporate			74				35
Total revenues		$	1,782,143			$	1,794,868
Total costs and expenses			1,614,894				1,629,012
Operating income from continuing operations			167,249				165,856
Interest income			2,189				2,237
Interest expense			(55,542	)			(55,718	)
Defined benefit pension income			3,447				1,271
Loss on early extinguishment of debt			(1,127	)			(1,127	)
Income from continuing operations before income taxes and equity income			116,216				112,519
Income tax (expense) benefit			(1,030	)			3,370
Equity income of unconsolidated entities, net			384				404
Income from continuing operations		$	115,570			$	116,293
Balance Sheet Information (at period end):
Cash and cash equivalents						$	85,205
Total assets							2,365,180
Total debt, inclusive of deferred financing costs							808,490
Total equity							734,914

 

17

		Pro Forma
(dollars in thousands)		Year Ended December 31, 2018				Twelve Months Ended March 31, 2019
		(unaudited)				(unaudited)
Other Financial Information:
EBITDA  (a)		$	310,917			$	309,285
Adjusted EBITDA  (a)			322,167				319,226
Further Adjusted EBITDA  (a)			337,892				331,372
Total debt (b)							830,284
Ratio of net total debt to Further Adjusted EBITDA  (c)							2.25x

---

(a)

For additional information regarding our use of EBITDA, Adjusted EBITDA and Further Adjusted EBITDA and limitations on their usefulness as analytical tools, see “Use of Non-GAAP Measures.” A reconciliation of income from continuing operations, the most directly comparable U.S. GAAP measure, to EBITDA, Adjusted EBITDA and Further Adjusted EBITDA, on a pro forma basis after giving effect to the Transactions, is as follows:

 

		Pro Forma
(in thousands)		Year Ended December 31, 2018				Twelve Months Ended March 31, 2019
		(unaudited)				(unaudited)
Income from continuing operations (1)		$	115,570			$	116,293
Equity in loss of unconsolidated entities, net (1)			(384	)			(404	)
Income tax (benefit) expense (1)			1,030				(3,370	)
Loss on early extinguishment of debt (1)			1,127				1,127
Defined benefit pension (income) (1)			(3,447	)			(1,271	)
Interest expense, net  (1)			53,353				53,481
Depreciation and amortization			143,668				143,429
EBITDA			310,917				309,285
Harsco Environmental segment adjustments  (2)			(6,162	)			(8,064	)
Harsco Rail segment adjustments  (3)			640				3,288
Acquisition and strategic related costs  (4)			1,184				3,353
Stock compensation			11,922				12,122
Other  (5)			3,666				(758	)
Adjusted EBITDA			322,167				319,226
Eliminated transport costs (6)			5,623				4,214
Pre-acquisition earnings (7)			3,682				1,998
Prospective synergies  (8)			5,000				5,000
Other adjustments  (9)			1,420				934
Further Adjusted EBITDA  (10)		$	337,892			$	331,372

 

(1)

Income from continuing operations, Equity in loss of unconsolidated entities, net, Income tax benefit (expense), Loss on early extinguishment of debt, Defined benefit pension (income), and Interest expense, net, are described in the unaudited pro forma condensed combined financial statements included in the Unaudited Pro Forma Financial Statements.

(2)

Represents (i) a favorable non-cash adjustment to previously accrued amounts related to the disposal of certain slag material in Latin America of $3.2 million for each of the year ended December 31, 2018 and for the twelve months ended March 31, 2019; (ii) the favorable non-cash impact of the change in fair value to the acquisition-related contingent consideration liability for the acquisition of Altek of $2.9 million for the year ended December 31, 2018 and

 

18

$2.6 million for the twelve months ended March 31, 2019; and (iii) a non-cash gain related to the liquidation of cumulated translation adjustment for an exited country of $2.3 million for the twelve months ended March 31, 2019.

(3)

Represents costs associated with a productivity improvement initiative in this segment.

(4)

Represents (i) costs associated with our acquisition of Altek and its affiliated entities of $1.2 million for the year ended December 31, 2018 and $1.2 million for the twelve months ended March 31, 2019; and (ii) costs associated with supporting and executing our growth strategy relating to the Acquisition and Asset Sale of $2.2 million for the twelve months ended March 31, 2019.

(5)

Consists principally of various adjustments required by our credit agreement as well as historical acquisition related expenses incurred by Clean Earth and elimination of management fees paid by Clean Earth to its former parent.

(6)

Excess transportation costs for the disposal of processed material for beneficial reuse applications that have been eliminated with the commencement of operations at a new processing and beneficial reuse site in closer proximity to customer and other processing locations.

(7)

Represents pre-acquisition Adjusted EBITDA contribution from businesses acquired by Clean Earth in 2018.

(8)

Synergies associated with the Transactions are expected to be achieved within one year and are comprised of operational efficiencies and cost savings. These synergies are inherently uncertain, and are subject to significant business, economic and competitive conditions and contingencies, many of which are difficult to predict and beyond our control. We cannot assure you that we will be able to achieve these synergies as planned or at all.

(9)

Includes various Clean Earth adjustments, including costs related to facility closures.

(10)

The table set forth below also presents Further Adjusted EBITDA of Harsco on a pro forma basis for the periods presented by adjusting the historical Adjusted EBITDA of Harsco to give effect to (i) incremental Clean Earth Further Adjusted EBITDA, (ii) the removal of the Adjusted EBITDA of Air-X-Changers, and (iii) prospective synergies associated with the Transactions:

 

(in thousands)		Year Ended December 31, 2018				Twelve Months Ended March 31, 2019
Harsco Adjusted EBITDA (a)		$	328,617			$	329,045
Clean Earth Further Adjusted EBITDA (b)			52,585				50,533
Air-X-Changers Adjusted EBITDA (c)			(48,310	)			(53,206	)
Prospective synergies (d)			5,000				5,000
Pro forma Further Adjusted EBITDA		$	337,892			$	331,372

 

(a)

For a reconciliation of the Harsco’s Adjusted EBITDA, see footnote (e) under “—Summary Historical Consolidated Financial Information of Harsco Corporation.”

(b)

For a reconciliation of the Clean Earth Further Adjusted EBITDA, see footnote (b) under “—Summary Historical Consolidated Financial Information of Clean Earth.”

(c)

For a reconciliation of Air-X-Changer’s Adjusted EBITDA, see footnote (e) under “—Summary Historical Consolidated Financial Information of Harsco Corporation.”

(d)

See the description of prospective synergies in footnote 8 above.

 

(b)	Total debt is exclusive of deferred financing costs.

(c)	We define net total debt as total debt less cash and cash equivalents.

 

19

Summary Historical Consolidated Financial Information of Harsco Corporation

 

We derived the summary consolidated statement of operations information and the summary consolidated statement of cash flows information for the years ended December 31, 2018, 2017 and 2016 and the summary consolidated balance sheet information as of December 31, 2018 and 2017 in the summary table below from our audited consolidated financial statements and related notes. The summary consolidated balance sheet information as of December 31, 2016 is derived from our audited consolidated financial statements and related notes. The summary consolidated statement of operations information for the three months ended March 31, 2019 and 2018, and the summary consolidated balance sheet information as of March 31, 2019 have been derived from our unaudited interim consolidated financial statements and related notes. The summary consolidated balance sheet information as of March 31, 2018 has been derived from our unaudited interim consolidated financial statements and related notes. The summary historical consolidated financial information of Harsco for the twelve months ended March 31, 2019 has been calculated by adding the consolidated financial statements of Harsco for the three months ended March 31, 2019 to the consolidated financial statements of Harsco for the year ended December 31, 2018, and then subtracting the consolidated financial statements of Harsco for the three months ended March 31, 2018. Our historical results are not necessarily indicative of the results expected for any future period, and the results in the three months ended March 31, 2019, are not necessarily indicative of results to be expected for the full year or any other period. In the opinion of our management, our unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of our financial position as of March 31, 2019 and 2018 and our results of operations for the three-month periods ended March 31, 2019 and 2018. You should read the summary historical financial information below, together with our audited consolidated financial statements and related notes thereto, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

		Year Ended December 31,												Three Months Ended March 31,								Twelve Months Ended March  31, 2019
(in thousands)		2018  (b)				2017				2016				2019				2018
														(unaudited)				(unaudited)				(unaudited)
Statement of Operations Information:
Harsco Environmental (f/k/a Harsco Metals & Minerals)		$	1,068,304			$	1,011,328			$	965,540			$	261,312			$	264,723			$	1,064,893
Harsco Industrial			374,708				299,592				247,542				117,385				83,598				408,495
Harsco Rail			279,294				295,999				238,107				68,591				59,678				288,207
Harsco Corporate			74				143				34				—				39				35
Total revenues  (a)		$	1,722,380			$	1,607,062			$	1,451,223			$	447,288			$	408,038			$	1,761,630
Total costs and expenses			1,531,453				1,461,668				1,386,340				409,042				371,497				1,568,998
Operating income from continuing operations			190,927				145,394				64,883				38,246				36,541				192,632
Interest income			2,155				2,469				2,475				534				498				2,191
Interest expense			(38,148	)			(47,552	)			(51,584	)			(9,739	)			(9,583	)			(38,304	)
Defined benefit pension income (expense)			3,447				(2,595	)			(1,414	)			(1,337	)			839				1,271
Loss on early extinguishment of debt			(1,127	)			(2,265	)			(35,337	)			—				—				(1,127	)
Change in fair value to the unit adjustment liability; loss on dilution and sale of equity method investment			—				—				(58,494	)			—				—				—
Income (loss) from continuing operations before income taxes and equity income			157,254				95,451				(79,471	)			27,704				28,295				156,663
Income tax expense			(12,899	)			(83,803	)			(6,637	)			(4,855	)			(8,266	)			(9,488	)
Equity income of unconsolidated entities			384				—				5,686				20				—				404
Income (loss) from continuing operations		$	144,739			$	11,648			$	(80,422	)		$	22,869			$	20,029			$	147,579

 

20

		Year Ended December 31,												Three Months Ended March 31,								Twelve Months Ended March  31, 2019
(in thousands)		2018  (b)				2017				2016				2019				2018
														(unaudited)				(unaudited)				(unaudited)
Cash Flow Information:
Net cash provided (used) by:
Operating activities  (c)		$	192,022			$	176,892			$	159,876			$	14,838			$	(8,243	)		$	215,103
Investing activities			(161,143	)			(103,325	)			122,887				(38,641	)			(30,342	)			(169,442	)
Financing activities  (c)			(25,538	)			(83,715	)			(292,364	)			44,359				39,165				(20,344	)
Balance Sheet Information (at period end):
Cash and cash equivalents		$	64,260			$	62,098			$	69,831			$	84,743			$	64,780			$	84,743
Total assets			1,632,867				1,578,685				1,581,338				1,737,561				1,582,621				1,737,561
Total debt, inclusive of deferred financing costs			602,229				586,623				659,072				655,339				626,920				655,339
Total equity			313,376				215,165				137,563				335,272				246,345				335,272
Other Financial Information:
Free Cash Flow before growth capital expenditures  (d)		$	103,991			$	109,326			$	109,879			$	(7,032	)		$	(26,839	)		$	123,798
Total Capital Expenditures			(132,168	)			(98,314	)			(69,340	)			(36,407	)			(26,897	)			(141,678	)
Maintenance Capital Expenditures			(101,513	)			(81,849	)			(59,472	)			(23,890	)			(19,213	)			(106,190	)
EBITDA  (e)			320,727				272,352				201,889				70,802				69,241				322,288
Adjusted EBITDA  (e)			328,617				287,484				263,847				75,834				75,406				329,045

---

(a)

We have adopted the new revenue recognition standard utilizing the modified retrospective transition method, including the use of practical expedients. Comparative information has not been restated and continues to be reported under accounting principles generally accepted in the United States in effect for those periods. See Note 2 to our audited consolidated financial Statements for additional information.

(b)	Includes the effects of the acquisition of Altek Europe Holdings Limited and its affiliated entities. See Note 3 to our audited consolidated financial statements for additional information.

(c)

On January 1, 2017, we adopted changes issued by the FASB to the accounting for stock-based compensation. We reclassified employee taxes paid on stock compensation in the amount of $0.1 million for the year ended December 31, 2016, from Cash provided by operating activities to Cash provided (used by) financing activities on our audited consolidated statement of Cash Flows.

(d)

In addition to Net cash provided by operating activities presented in accordance with U.S. GAAP, we use Free Cash Flow before growth capital expenditures to measure liquidity. Free Cash Flow before growth capital expenditures is defined as Net cash provided by operating activities, less capital expenditures, plus capital expenditures for strategic ventures, plus total proceeds from sales of assets, plus growth capital expenditures. Free Cash Flow before growth capital expenditures is a non-GAAP financial measure. For more information about this measure, see “Use of Non-GAAP Measures.”

 

The table set forth below presents a reconciliation of our cash flow provided by operating activities to Free Cash Flow before growth capital expenditures for the years ended December 31, 2018, 2017 and 2016, for the three months ended March 31, 2019 and 2018 and for the twelve months ended March 31, 2019:

 

(in thousands)		Year Ended December 31,												Three Months Ended								Twelve Months Ended March 31, 2019
		2018  (b)				2017				2016				March 31, 2019				March 31, 2018
														(unaudited)				(unaudited)				(unaudited)
Net cash provided by operating activities		$	192,022			$	176,892			$	159,876			$	14,838			$	(8,243	)		$	215,103
Less capital expenditures			(132,168	)			(98,314	)			(69,340	)			(36,407	)			(26,897	)			(141,678	)
Plus capital expenditures for strategic ventures  (1)			1,595				865				170				843				240				2,198
Plus total proceeds from sales of assets  (2)			11,887				13,418				9,305				1,177				377				12,687
Free cash flow			73,336				92,861				100,011				(19,549	)			(34,523	)			88,310
Plus growth capital expenditures			30,655				16,465				9,868				12,517				7,684				35,488
Free Cash Flow before growth capital expenditures		$	103,991			$	109,326			$	109,879			$	(7,032)			$	(26,839)			$	123,798

 

(1)

Capital expenditures for strategic ventures represent the partner’s share of capital expenditures in certain ventures consolidated in our financial statements.

(2)

Asset sales are a normal part of the business, primarily for our Harsco Environmental segment.

 

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(e)

For additional information regarding our use of EBITDA and Adjusted EBITDA and limitations on their usefulness as analytical tools, see “Use of Non-GAAP Measures.” A reconciliation of income (loss) from continuing operations, the most directly comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA, on a historical basis, is as follows:

 

		Year Ended December 31,												Three Months Ended								Twelve Months Ended March 31, 2019
(in thousands)		2018  (b)				2017				2016				March 31, 2019				March 31, 2018
														(unaudited)				(unaudited)				(unaudited)
Income (loss) from continuing operations		$	144,739			$	11,648			$	(80,422	)		$	22,869			$	20,029			$	147,579
Equity in (income) of unconsolidated entities, net			(384	)			—				(5,686	)			(20	)			—				(404	)
Income tax expense			12,899				83,803				6,637				4,855				8,266				9,488
Change in fair value to the unit adjustment liability and loss on dilution and sale of equity method investment			—				—				58,494				—				—				—
Loss on early extinguishment of debt			1,127				2,265				35,337				—				—				1,127
Defined benefit pension (income) expense			(3,447	)			2,595				1,414				1,337				(839	)			(1,271	)
Interest expense			38,148				47,552				51,584				9,739				9,583				38,304
Interest income			(2,155	)			(2,469	)			(2,475	)			(534	)			(498	)			(2,191	)
Depreciation and amortization			129,800				126,958				137,016				32,556				32,700				129,656
EBITDA			320,727				272,352				201,899				70,802				69,241				322,288
Harsco Environmental segment adjustments (1)			(6,162	)			4,589				3,943				(1,902	)			—				(8,064	)
Harsco Rail segment adjustments  (2)			640				—				45,050				2,648				—				3,288
Acquisition and strategic related costs  (3)			1,184				—				3,287				2,739				—				3,923
Stock compensation (4)			11,060				9,745				7,667				3,551				3,347				11,264
Other (4)			1,168				798				2,001				(2,004	)			2,818				(3,654	)
Adjusted EBITDA (5)		$	328,617			$	287,484			$	263,847			$	75,834			$	75,406			$	329,045

 

(1)

Represents (i) a favorable non-cash adjustment to previously accrued amounts related to the disposal of certain slag material in Latin America of $3.2 million for the year ended December 31, 2018 and the twelve months ended March 31, 2019; (ii) the favorable (unfavorable) non-cash impact of the change in fair value to the acquisition-related contingent consideration liability for the Altek acquisition of $2.9 million for the year ended December 31, 2018, ($0.4) million for the three months ended March 31, 2019 and $2.6 million for the twelve months ended March 31, 2019; (iii) non-cash gains related to the liquidation of cumulated translation adjustment for exited countries of $1.2 million for the year ended December 31, 2016, $2.3 million for the three months ended March 31, 2019 and $2.3 million for the twelve months ended March 31, 2019; (iv) charges primarily attributed to site exit and underperforming contract costs of $5.1 million for the year ended December 31, 2016; and (v) bad debt expense related to a customer administration of $4.6 million for the year ended December 31, 2017.

(2)

Represents (i) costs associated with a productivity improvement initiative in this segment of $0.6 million for the year ended December 31, 2018, $2.6 million for the three months ended March 31, 2019 and $3.3 million for the twelve months ended March 31, 2019; and (ii) forward contract loss provision related to our contracts with the federal railway system of Switzerland of $45.1 million for the year ended December 31, 2016.

(3)

Represents (i) costs associated with the acquisition of Altek and its affiliated entities of $1.2 million for each of the year ended December 31, 2018 and the twelve months ended March 31, 2019; (ii) costs associated with supporting and executing our growth strategy relating to the Acquisition and the Asset Sale of $2.7 million for each of the three months ended March 31, 2019 and the twelve months ended March 31, 2019; and (iii) costs associated with certain strategic initiatives of $3.3 million incurred for the year ended December 31, 2016.

(4)

Consists principally of various adjustments required by our credit agreement.

 

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(5)

The historical Adjusted EBITDA of Harsco includes the operations of Air-X-Changers and does not give pro forma affect to the Asset Sale. The table set forth below provides the historical contribution of Air-X-Changers to Adjusted EBITDA of Harsco for the periods presented and presents a reconciliation of the Adjusted EBITDA of Air-X-Changers to income from continuing operations of Air-X-Changers, the most directly comparable U.S. GAAP measure, on a historical basis.

 

(in thousands)		Year Ended December 31, 2018				Twelve Months Ended March 31, 2019
		(unaudited)				(unaudited)
Income from continuing operations of Air-X-Changers		$	32,532			$	36,197
Income tax expense			10,780				11,995
Interest expense			55				38
Depreciation and amortization			4,204				4,299
Stock compensation			691				695
Other			48				(18	)
Air-X-Changers Adjusted EBITDA		$	48,310			$	53,206

 

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Summary Historical Consolidated Financial Information of Clean Earth

 

We derived the summary consolidated statement of operations information and the summary consolidated statement of cash flows information of Clean Earth for the years ended December 31, 2018 and 2017 and the summary consolidated balance sheet information as of December 31, 2018 in the summary table below from Clean Earth’s audited consolidated financial statements and related notes. The summary consolidated statement of operations information of Clean Earth for the three months ended March 31, 2019 and 2018, and the summary consolidated balance sheet information of Clean Earth as of March 31, 2019 have been derived from Clean Earth’s unaudited interim consolidated financial statements and related notes. The summary historical consolidated financial information of Clean Earth for the twelve months ended March 31, 2019 has been calculated by adding the consolidated financial statements of Clean Earth for the three months ended March 31, 2019 to the consolidated financial statements of Clean Earth for the year ended December 31, 2018, and then subtracting the consolidated financial statements of Clean Earth for the three months ended March 31, 2018. Clean Earth’s historical results are not necessarily indicative of the results expected for any future period, and the results in the three months ended March 31, 2019, are not necessarily indicative of results to be expected for the full year or any other period. In the opinion of Clean Earth’s management, Clean Earth’s unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements of Clean Earth and include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of Clean Earth’s financial position as of March 31, 2019 and 2018 and Clean Earth’s results of operations for the three month periods ended March 31, 2019 and 2018. You should read the summary historical financial information below, together with Clean Earth’s audited and unaudited consolidated financial statements and related notes thereto.

 

		Year Ended December 31,								Three Months Ended March 31,								Twelve Months Ended March  31, 2019
(in thousands)		2018				2017				2019				2018
										(unaudited)				(unaudited)				(unaudited)
Statement of Operations Information:
Revenues, net		$	266,916			$	211,247			$	63,632			$	58,221			$	272,327
Cost of services			201,711				159,523				49,476				45,399				205,788
Gross profit			65,205				51,724				14,156				12,822				66,539
Selling, general and administrative expenses			50,262				39,187				12,774				11,938				51,098
Management fee			500				500				125				125				500
Operating Income			14,443				12,037				1,257				759				14,941
Other (loss) income, net			(396	)			80				(124	)			(39	)			(481	)
Interest expense			(863	)			(821	)			(289	)			(188	)			(964	)
Interest expense, related-party			(16,496	)			(13,456	)			(4,575	)			(3,465	)			(17,606	)
Loss from operations before income tax benefit			(3,312	)			(2,160	)			(3,731	)			(2,933	)			(4,110	)
Income tax benefit			2,458				15,469				1,021				617				2,862
Net (loss) income		$	(854	)		$	13,309			$	(2,710	)		$	(2,316	)		$	(1,248	)
Cash Flow Information:
Net cash provided (used) by:
Operating activities		$	23,149			$	15,555			$	(5,795	)		$	653			$	16,701
Investing activities			(65,360	)			(11,736	)			(3,050	)			(7,806	)			(60,604	)
Financing activities			41,282				(1,709	)			7,329				5,844				42,767
Balance Sheet Information (at period end):
Cash and cash equivalents		$	1,978			$	2,907			$	462							$	462
Total assets			407,804				352,677				422,283								422,283
Total debt			209,736				167,930				217,198								217,198
Total stockholders’ equity			122,720				122,021				120,398								120,398

 

24