Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On November 26, 2013, Harsco Corporation (the "Company") consummated the previously announced transaction to sell the Company’s Harsco Infrastructure Segment into a strategic venture with Clayton, Dubilier & Rice (“CD&R”) as part of a transaction that combines the Harsco Infrastructure Segment with Brand Energy & Infrastructure Services, Inc., which CD&R simultaneously acquired (the “Infrastructure Transaction”). The Company has contributed substantially all of the Company’s equity interests in, and the net assets of, the Harsco Infrastructure Segment to the strategic venture in exchange for $300 million in cash, subject to working capital and other adjustments, and an approximate 29% equity interest in the strategic venture. The Company’s approximate 29% equity interest in the strategic venture will be accounted for under the equity method of accounting as prescribed by accounting principles generally accepted in the United States of America.
The following unaudited pro forma condensed consolidated financial information is based on the Company’s historical consolidated financial statements and is intended to provide information about how the Infrastructure Transaction might have affected the Company’s historical consolidated financial statements if it had closed on January 1, 2012, in the case of the condensed consolidated statement of operations for the year ended December 31, 2012; January 1, 2013, in the case of the condensed consolidated statement of operations for the nine months ended September 30, 2013; and September 30, 2013, in the case of the condensed consolidated balance sheet as of September 30, 2013. The unaudited pro forma condensed consolidated financial information is based on available information and assumptions that the Company believes are reasonable. The unaudited pro forma condensed consolidated financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what the Company's financial condition or results of operations would have been had the Infrastructure Transaction occurred on the dates indicated. The unaudited pro forma condensed consolidated financial information also should not be considered representative of the Company’s future financial condition or results of operations.
For information with respect to certain items that are and are not reflected in the unaudited pro forma condensed consolidated financial information, please refer to the notes to the unaudited pro forma condensed consolidated financial information.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, and the unaudited condensed consolidated financial statements , including the notes thereto, included in the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2013.
1
HARSCO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 2013 (In thousands):
| Harsco Historical | Less: Harsco Infrastructure | Infrastructure Transaction Related Adjustments | Pro Forma | |||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 115,812 | $ | — | $ | 327,477 | a, b, c, e | $ | 443,289 | |||||||||
| Trade accounts receivable, net | 354,121 | — | — | 354,121 | ||||||||||||||
| Other receivables | 29,627 | — | — | 29,627 | ||||||||||||||
| Inventories | 176,792 | — | — | 176,792 | ||||||||||||||
| Assets held-for-sale | 714,986 | (714,786 | ) | — | 200 | |||||||||||||
| Other current assets | 74,238 | — | 8,482 | a | 82,720 | |||||||||||||
| Total current assets | 1,465,576 | (714,786 | ) | 335,959 | 1,086,749 | |||||||||||||
| Property, plant and equipment, net | 706,618 | — | 706,618 | |||||||||||||||
| Goodwill | 428,027 | — | — | 428,027 | ||||||||||||||
| Investments | — | — | 313,590 | a | 313,590 | |||||||||||||
| Intangible assets, net | 54,684 | — | — | 54,684 | ||||||||||||||
| Other assets | 114,628 | — | 32,843 | a | 147,471 | |||||||||||||
| Total assets | $ | 2,769,533 | $ | (714,786 | ) | $ | 682,392 | $ | 2,737,139 | |||||||||
| LIABILITIES | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Short-term borrowings | $ | 274,283 | $ | — | $ | — | $ | 274,283 | ||||||||||
| Current maturities of long-term debt | 7,337 | — | — | 7,337 | ||||||||||||||
| Accounts payable | 196,530 | — | — | 196,530 | ||||||||||||||
| Accrued compensation | 53,788 | — | — | 53,788 | ||||||||||||||
| Income taxes payable | 1,541 | — | — | 1,541 | ||||||||||||||
| Dividends payable | 16,536 | — | — | 16,536 | ||||||||||||||
| Insurance liabilities | 13,640 | — | — | 13,640 | ||||||||||||||
| Advances on contracts | 28,108 | — | — | 28,108 | ||||||||||||||
| Liabilities of assets held-for-sale | 218,046 | (218,046 | ) | — | — | |||||||||||||
| Other current liabilities | 150,642 | — | 28,682 | a, d | 179,324 | |||||||||||||
| Total current liabilities | 960,451 | (218,046 | ) | 28,682 | 771,087 | |||||||||||||
| Long-term debt | 787,568 | — | — | 787,568 | ||||||||||||||
| Deferred income taxes | 8,337 | — | — | 8,337 | ||||||||||||||
| Insurance liabilities | 42,003 | — | — | 42,003 | ||||||||||||||
| Retirement plan liabilities | 314,593 | — | 21,725 | d | 336,318 | |||||||||||||
| Other liabilities | 51,248 | — | 120,095 | a | 171,343 | |||||||||||||
| Total liabilities | 2,164,200 | (218,046 | ) | 170,502 | 2,116,656 | |||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||
| HARSCO CORPORATION STOCKHOLDERS’ EQUITY | ||||||||||||||||||
| Preferred stock | — | — | — | — | ||||||||||||||
| Common stock | 140,224 | — | — | 140,224 | ||||||||||||||
| Additional paid-in capital | 158,417 | — | — | 158,417 | ||||||||||||||
| Accumulated other comprehensive loss | (429,665 | ) | — | — | (429,665 | ) | ||||||||||||
| Retained earnings | 1,423,209 | (496,740 | ) | 511,890 | a, b, c, d, e | 1,438,359 | ||||||||||||
| Treasury stock | (746,046 | ) | — | — | (746,046 | ) | ||||||||||||
| Total Harsco Corporation stockholders’ equity | 546,139 | (496,740 | ) | 511,890 | 561,289 | |||||||||||||
| Noncontrolling interests | 59,194 | — | — | 59,194 | ||||||||||||||
| Total equity | 605,333 | (496,740 | ) | 511,890 | 620,483 | |||||||||||||
| Total liabilities and equity | $ | 2,769,533 | $ | (714,786 | ) | $ | 682,392 | $ | 2,737,139 | |||||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial information.
2
HARSCO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2013 (In thousands, except per share data):
| Harsco Historical | Less: Harsco Infrastructure | Infrastructure Transaction Related Adjustments | Pro Forma | ||||||||||||||||
| Revenues from continuing operations: | |||||||||||||||||||
| Service revenues | $ | 1,707,658 | $ | (709,800 | ) | $ | — | $ | 997,858 | ||||||||||
| Product revenues | 507,518 | — | — | 507,518 | |||||||||||||||
| Total revenues | 2,215,176 | (709,800 | ) | — | 1,505,376 | ||||||||||||||
| Costs and expenses from continuing operations: | |||||||||||||||||||
| Cost of services sold | 1,353,749 | (516,020 | ) | 100 | e | 837,829 | |||||||||||||
| Cost of products sold | 355,555 | — | — | 355,555 | |||||||||||||||
| Selling, general and administrative expenses | 374,325 | (194,043 | ) | 10,323 | j, k, l | 190,605 | |||||||||||||
| Research and development expenses | 7,457 | (2,499 | ) | — | 4,958 | ||||||||||||||
| Long-lived asset impairment charge and transaction costs | 253,677 | (241,323 | ) | (12,354 | ) | f | — | ||||||||||||
| Other (income) expenses | 2,158 | 3,785 | (10,158 | ) | b, c, f, h | (4,215 | ) | ||||||||||||
| Total costs and expenses | 2,346,921 | (950,100 | ) | (12,089 | ) | 1,384,732 | |||||||||||||
| Operating income (loss) from continuing operations | (131,745 | ) | 240,300 | 12,089 | 120,644 | ||||||||||||||
| Interest income | 1,624 | (159 | ) | — | 1,465 | ||||||||||||||
| Interest expense | (37,413 | ) | 1,106 | (7,924 | ) | d, g | (44,231 | ) | |||||||||||
| Income (loss) from continuing operations before income taxes and equity income | (167,534 | ) | 241,247 | 4,165 | 77,878 | ||||||||||||||
| Income tax expense | (27,268 | ) | 7,826 | (3,646 | ) | b, c, e, f, g, h, j, k, l | (23,088 | ) | |||||||||||
| Equity in income of unconsolidated entities, net | 1,015 | (988 | ) | 9,300 | i | 9,327 | |||||||||||||
| Income (loss) from continuing operations | (193,787 | ) | 248,085 | 9,819 | 64,117 | ||||||||||||||
| Discontinued operations: | |||||||||||||||||||
| Loss on disposal of discontinued business | (2,145 | ) | — | — | (2,145 | ) | |||||||||||||
| Income tax benefit related to discontinued business | 814 | — | — | 814 | |||||||||||||||
| Loss from discontinued operations | (1,331 | ) | — | — | (1,331 | ) | |||||||||||||
| Net income (loss) | (195,118 | ) | 248,085 | 9,819 | 62,786 | ||||||||||||||
| Less: Net income attributable to noncontrolling interests | (7,495 | ) | 3,496 | — | (3,999 | ) | |||||||||||||
| Net income (loss) attributable to Harsco Corporation | $ | (202,613 | ) | $ | 251,581 | $ | 9,819 | $ | 58,787 | ||||||||||
| Amounts attributable to Harsco Corporation common stockholders: | |||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | (201,282 | ) | $ | 251,581 | $ | 9,819 | $ | 60,118 | ||||||||||
| Loss from discontinued operations, net of tax | (1,331 | ) | — | — | (1,331 | ) | |||||||||||||
| Net income (loss) attributable to Harsco Corporation common stockholders | $ | (202,613 | ) | $ | 251,581 | $ | 9,819 | $ | 58,787 | ||||||||||
| Weighted-average shares of common stock outstanding | 80,747 | 80,747 | |||||||||||||||||
| Basic earnings (loss) per share attributable to Harsco Corporation common stockholders: | |||||||||||||||||||
| Continuing operations | $ | (2.49 | ) | $ | 0.74 | ||||||||||||||
| Discontinued operations | (0.02 | ) | (0.02 | ) | |||||||||||||||
| Basic earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | (2.51 | ) | $ | 0.73 | (a) | |||||||||||||
| Diluted weighted-average shares of common stock outstanding | 80,747 | 81,006 | |||||||||||||||||
| Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders: | |||||||||||||||||||
| Continuing operations | $ | (2.49 | ) | $ | 0.74 | ||||||||||||||
| Discontinued operations | (0.02 | ) | (0.02 | ) | |||||||||||||||
| Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | (2.51 | ) | $ | 0.73 | (a) | |||||||||||||
(a) Does not total due to rounding.
See accompanying notes to the unaudited pro forma condensed consolidated financial information.
3
HARSCO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2012 (In thousands, except per share data):
| Harsco Historical | Less: Harsco Infrastructure | Infrastructure Transaction Related Adjustments | Pro Forma | ||||||||||||||||
| Revenues from continuing operations: | |||||||||||||||||||
| Service revenues | $ | 2,340,996 | $ | (937,293 | ) | $ | — | $ | 1,403,703 | ||||||||||
| Product revenues | 705,022 | — | — | 705,022 | |||||||||||||||
| Total revenues | 3,046,018 | (937,293 | ) | — | 2,108,725 | ||||||||||||||
| Costs and expenses from continuing operations: | |||||||||||||||||||
| Cost of services sold | 1,861,732 | (682,409 | ) | 133 | e | 1,179,456 | |||||||||||||
| Cost of products sold | 487,784 | — | — | 487,784 | |||||||||||||||
| Selling, general and administrative expenses | 503,339 | (260,308 | ) | 15,954 | j, k, l | 258,985 | |||||||||||||
| Research and development expenses | 9,139 | (3,113 | ) | — | 6,026 | ||||||||||||||
| Goodwill impairment charge | 265,038 | (265,038 | ) | — | — | ||||||||||||||
| Other expenses | 93,776 | (73,972 | ) | (7,779 | ) | b, c, f, h | 12,025 | ||||||||||||
| Total costs and expenses | 3,220,808 | (1,284,840 | ) | 8,308 | 1,944,276 | ||||||||||||||
| Operating income (loss) from continuing operations | (174,790 | ) | 347,547 | (8,308 | ) | 164,449 | |||||||||||||
| Interest income | 3,676 | (2,418 | ) | — | 1,258 | ||||||||||||||
| Interest expense | (47,381 | ) | 10,728 | (10,565 | ) | d, g | (47,218 | ) | |||||||||||
| Income (loss) from continuing operations before income taxes and equity income | (218,495 | ) | 355,857 | (18,873 | ) | 118,489 | |||||||||||||
| Income tax expense | (35,251 | ) | 1,010 | 5,330 | b, c, e, f, g, h, j, k, l | (28,911 | ) | ||||||||||||
| Equity in income of unconsolidated entities, net | 564 | — | 12,400 | i | 12,964 | ||||||||||||||
| Income (loss) from continuing operations | (253,182 | ) | 356,867 | (1,143 | ) | 102,542 | |||||||||||||
| Discontinued operations: | |||||||||||||||||||
| Loss on disposal of discontinued business | (1,843 | ) | — | — | (1,843 | ) | |||||||||||||
| Income tax benefit related to discontinued business | 924 | — | — | 924 | |||||||||||||||
| Loss from discontinued operations | (919 | ) | — | — | (919 | ) | |||||||||||||
| Net income (loss) | (254,101 | ) | 356,867 | (1,143 | ) | 101,623 | |||||||||||||
| Less: Net (income) loss attributable to noncontrolling interests | (511 | ) | 3,140 | — | 2,629 | ||||||||||||||
| Net income (loss) attributable to Harsco Corporation | $ | (254,612 | ) | $ | 360,007 | $ | (1,143 | ) | $ | 104,252 | |||||||||
| Amounts attributable to Harsco Corporation common stockholders: | |||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | (253,693 | ) | $ | 360,007 | $ | (1,143 | ) | $ | 105,171 | |||||||||
| Loss from discontinued operations, net of tax | (919 | ) | — | — | (919 | ) | |||||||||||||
| Net income (loss) attributable to Harsco Corporation common stockholders | $ | (254,612 | ) | $ | 360,007 | $ | (1,143 | ) | $ | 104,252 | |||||||||
| Weighted-average shares of common stock outstanding | 80,632 | 80,632 | |||||||||||||||||
| Basic earnings (loss) per share attributable to Harsco Corporation common stockholders: | |||||||||||||||||||
| Continuing operations | $ | (3.15 | ) | $ | 1.30 | ||||||||||||||
| Discontinued operations | (0.01 | ) | (0.01 | ) | |||||||||||||||
| Basic earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | (3.16 | ) | $ | 1.29 | ||||||||||||||
| Diluted weighted-average shares of common stock outstanding | 80,632 | 80,881 | |||||||||||||||||
| Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders: | |||||||||||||||||||
| Continuing operations | $ | (3.15 | ) | $ | 1.30 | ||||||||||||||
| Discontinued operations | (0.01 | ) | (0.01 | ) | |||||||||||||||
| Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | (3.16 | ) | $ | 1.29 | ||||||||||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial information.
4
HARSCO CORPORATION
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
(1) Explanation of Infrastructure Transaction-related adjustments
| (a) | Reflects the net consideration received by the Company related to the Infrastructure Transaction and the associated deferred tax impacts: |
| (in thousands) | September 30, 2013 | |||
| Cash (including working capital adjustments) | $ | 323,277 | ||
| Value of equity method investment | 313,590 | |||
| Deferred tax asset - current (related to unit adjustment liability) | 8,482 | |||
| Deferred tax asset - noncurrent (related to unit adjustment liability) | 32,843 | |||
| Deferred tax liablity - noncurrent (related to book-to-tax basis difference of equity method investment) | (33,665 | ) | ||
| Less: Unit adjustment liability at present value - current | (22,320 | ) | ||
| Less: Unit adjustment liability at present value - noncurrent | (86,430 | ) | ||
| $ | 535,777 | |||
The unit adjustment liability represents quarterly payments required to be made by the Company, pursuant to the terms of a limited partnership agreement (the "Partnership Agreement") that governs the operation of the strategic venture, either (at the Company’s election) (i) in cash, with total payments to equal approximately $22 million per year on a pre-tax basis (approximately $15 million per year after tax), or (ii) in kind through the transfer of approximately 2.5% of the Company’s equity interest in the strategic venture to CD&R on an annual basis. The Company’s obligation to make such quarterly payments under the Partnership Agreement will cease upon the earlier of (i) the strategic venture achieving $479 million in last twelve months’ earnings before interest, tax, depreciation and amortization for three quarters, which need not be consecutive, and (ii) eight years after the closing of the Infrastructure Transaction. In addition, upon the initial public offering of the strategic venture, the Company’s quarterly payment obligation will decrease by the portion of CD&R ownership sold and is eliminated completely once CD&R ownership interest in the strategic venture falls below 20%. In the event of a liquidation of the strategic venture, CD&R would be entitled to a liquidation preference of approximately $336 million, plus any quarterly payments that had been paid in kind.
| (b) | Reflects the cash receipt by the Company of the $3.8 million deal fee and initial consulting fee as specified by the purchase agreement governing the Infrastructure Transaction (the "Purchase Agreement"), which is to be paid to the Company at closing. |
| (c) | Reflects the cash receipt by the Company of the $2.5 million transaction cost reimbursement as specified by the Purchase Agreement, which is to be paid to the Company at closing. |
| (d) | Reflects the present value of accrued pension related liabilities for defined benefit pension plans, excluding the United States and United Kingdom, which the Company is not retaining pursuant to the Purchase Agreement, but is required to fund for the next five fiscal years, as follows: |
| (in thousands) | September 30, 2013 | |||
| Other current liabilities | $ | 6,362 | ||
| Retirement plan liabilities | 21,725 | |||
| $ | 28,087 | |||
Accretion of the accrued pension related liabilities for the defined benefit pension plans noted above, had the Infrastructure Transaction closed-on January 1, 2012 and 2013, respectively, was as follows:
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Accretion expense related to accrued pension liabilities for defined benefit pension plans | $ | 745 | $ | 559 | ||||
5
HARSCO CORPORATION
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
| (e) | Reflects the $2.1 million cash payment required to be made by the Company at the closing of the Infrastructure Transaction related to retention of properties by the Company that have historically been part of the Harsco Infrastructure Segment. Additionally, depreciation expense related to these properties had the Infrastructure Transaction closed on January 1, 2012 and 2013, respectively, was as follows: |
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Depreciation expense related to retained properties | $ | 133 | $ | 100 | ||||
| (f) | Reflects the reversal of transaction costs associated with the Infrastructure Transaction as follows: |
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Transaction costs - in the caption Long-lived asset impairment charge and transaction costs | $ | — | $ | 12,354 | ||||
| Transaction costs - in the caption Other expenses | 29 | 2,770 | ||||||
| $ | 29 | $ | 15,124 | |||||
| (g) | Reflects accretion expense of the unit adjustment liability had the Infrastructure Transaction closed on January 1, 2012 and 2013, respectively, as follows: |
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Accretion of unit adjustment liability | $ | 9,820 | $ | 7,365 | ||||
| (h) | Reflects the annual consulting fee received by the Company, which begins to accrue at closing, as specified by the Purchase Agreement, had the Infrastructure Transaction closed on January 1, 2012 and 2013, respectively, as follows: |
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Annual consulting fee | $ | 1,450 | $ | 1,088 | ||||
| (i) | Reflects the Company's approximate 29% equity interest in the income of the strategic venture had the Infrastructure Transaction closed on January 1, 2012 and 2013, respectively, as follows: |
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Equity in income of strategic venture | $ | 12,400 | $ | 9,300 | ||||
| (j) | Reflects net periodic pension cost related to defined benefit pension plans in the United States and United Kingdom which have been retained by the Company pursuant to the terms of the Purchase Agreement. The net periodic pension cost related to these defined benefit pension plans that has historically been included in the the Harsco Infrastructure Segment is as follows: |
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Net periodic pension cost | $ | 10,149 | $ | 5,969 | ||||
6
HARSCO CORPORATION
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
| (k) | Reflects decreased depreciation expense associated with certain property, plant and equipment that is included as part of the Infrastructure Transaction, which has historically not been part of the Harsco Infrastructure Segment, had the Infrastructure Transaction closed on January 1, 2012 and 2013, respectively, as follows: |
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Decreased depreciation expense | $ | 379 | $ | 284 | ||||
(l) Reflects certain corporate overhead costs that have historically been presented in the results of operations of the Harsco Infrastructure Segment, which will continue to be incurred by the Company, as follows:
| (in thousands) | Year Ended December 31, 2012 | Nine Months Ended September 30, 2013 | ||||||
| Corporate overhead expenses included in Harsco Infrastructure Segment | $ | 6,184 | $ | 4,638 | ||||
(2) Items not adjusted in the unaudited pro forma condensed consolidated financial information
(a) The Company has historically provided corporate governance, accounting, human resources, risk management, treasury, tax, internal audit and other support services to the Harsco Infrastructure Segment. As a result of the Infrastructure Transaction, the Company anticipates incurring restructuring charges related to stranded costs associated with the Harsco Infrastructure Segment and a reduction of corporate overhead costs. No adjustment related to these items has been reflected in the unaudited pro forma information.
(b) The Company has not reflected any reduction in interest expense associated with the closing of the Infrastructure Transaction. The Company anticipates reducing the amount outstanding under the Company's multi-year credit facility with the cash proceeds from the Infrastructure Transaction, but has no legal requirement to do so.
7