Enviri Corp (NVRI) 2013 Q4 法說會逐字稿

Good morning. My name is Johna, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation fourth quarter 2013 earnings release conference call.

(Operator Instructions)

This telephone conference presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation, and all rights are reserved. Harsco Corporation will be recording this teleconference. No other recordings or redistributions of this telephone conference by any other party are permitted without the express written consent of Harsco Corporation. Your participation indicates your agreement. I would now like to introduce Mr. Ken Julian, Communications Director of Harsco Corporation. Mr. Julian, you may begin your call.

Thank you, Operator. Welcome to everyone joining us today. I am Ken Julian, Communications Director for Harsco. With me are Patrick Decker, our President and Chief Executive Officer and Nick Grasberger, our Chief Financial Officer.

This morning we will discuss our results from the fourth-quarter of 2013 and provide our outlook for 2014. Then we will be happy to take your questions. Before our presentation, let me take care of a few administrative items. As you probably know, our earnings press release was issued yesterday morning, prior to our having to postpone this call due to unexpected technical difficulties completely outside our control. We, again, regret any inconvenience.

A PDF file of the press release, as well as slide presentation that accompanies our formal remarks for this call have been posted to the Investor Relations section of our Harsco website. We encourage you to access these files. Second, this call is being recorded and webcast. A replay will be available on our website later today.

Next, we will make statements considered forward-looking within the meaning of Federal Securities Laws. These statements are based on our current knowledge and expectations, and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. For a discussion of such risks and uncertainties, see the risk factors section in our most recent 10-K and 10-Q, as well as in certain of our other SEC filings. The Company undertakes no obligation to revise or update any forward-looking statements.

Lastly, in this call, we will refer to adjusted financial results that are considered non-GAAP for SEC reporting purposes. A reconciliation to US GAAP results is included in our press release, as well as in our slide presentation. Now, I will turn the call over to Patrick Decker, our President and CEO.

Thanks, Ken and good morning, everyone. This morning we reported our fourth-quarter results, which included operating income in line with our guidance, and both revenue and income growth at our Metals and Minerals business. Nick will provide additional detail on our fourth-quarter performance momentarily.

I would like to begin with some perspective on 2013 overall as being the first year of our Harsco transformation. I'm proud of the work our team has accomplished in beginning to build the foundation for a stronger, higher-performing company.

As you see on slide number 2, the first of our major 2013 accomplishments was the development of our strategic plan, which sets the road map for the next several years. Supported by external resources, we have been able to build a far greater and deeper level of operating detail and analytical rigor into our planning. This has given us a clearer understanding into the various component parts and dynamics of our businesses that allows us to undertake a more disciplined approach to execution.

Obviously, our largest move in 2013 was the sale of our Infrastructure business into a strategic venture with Clayton, Dubilier & Rice. This transaction, which we completed in late November, provided immediate net cash proceeds of approximately $300 million, and gave us an ongoing 29% equity interest and a stronger, combined business with a solid presence in the Energy Services sector.

We expect 2014 to be largely a restructuring year at Brand, as the businesses become fully aligned and integrated. Our outlook for ongoing EBITDA performance and the future exit value for this business remains unchanged, as we continue to be very excited about the prospect for the new venture.

With the infrastructure transaction behind us, and also with the change in Metals and Minerals leadership that occurred late in the year, we have intensified our focus on the turnaround of the Metals and Minerals business. I will have more say about that in a moment.

Regarding the pipeline for major projects in our Rail group, you will have seen our announcement last quarter where we were awarded a significant $100 million contract for utility track maintenance vehicles by the Swiss railway system. I've just returned from Switzerland, where we met with railway authorities and got a first hand view of the tunnel being built in the heart of the Swiss Alps that our units will be supporting. At 57 kilometers or more than 35 miles, the AlpTransit [GTH] railway tunnel will be the longest in the world. It's a tremendously exciting project for Harsco to be involved in and I could not be prouder of our team.

You will have also seen our announcement early last month of our Hammco acquisition within the Industrial group. This bolt-on acquisition represented a cash outlay of approximately $25 million for a business generating annual revenues in the area of $30 million and operating margins in the mid- to upper teens, which we expect to have opportunities to grow through operating synergies. Hammco gives us an entry point into the adjacent process cooler segment where, historically, our Air-X-Changers business has not had a presence.

Lastly, we have several initiatives under way to sharpen the focus and value of our corporate center. We have already taken actions to more closely right size our corporate costs, commensurate with our smaller portfolio. Nick will cover that in more detail during his financial review.

Turning to slide 3, for those who were with us or listened in on our December Investor Day program, you will recall that we outlined three main pillars of our transformation strategy. The first of these is the turnaround of our Metals and Minerals business. Under the framework of our Simplification initiative, we've taken a deep analytical review of each operating site and contract in combination with an intense focus on simplifying the organizational design. We will have more to say this coming May during our first-quarter earnings call, when we will have landed firmly on the actions we need to take and begun the critical steps of execution.

As you saw from our Investor Day program, our turnaround strategy is focused on three primary areas. Better contract outcomes, where we will create a uniform structure and governance together with improved analytics to support higher returns. Operational efficiency, with a focus on improving the efficiency and effectiveness of our service delivery through a more simplified back-to-basics approach. Thirdly, building out proven higher value-added products and services that will provide our customers with new and differentiated services and products. I'm pleased with the improvement we've already begun to see in this past quarter. For 2014, we expect to deliver low double-digit improvement in operating income in Metals and Minerals, largely as result of the steps we are taking and the improved mix of new contracts that are coming online.

Turning next to the second pillar, which addresses our objectives for growing our Rail and Industrial platforms. We expect bidding activity for major projects in the Rail group to remain healthy. Rail serves an attractive world-wide market with a large installed base to build from. We see a number of opportunities to continue to build this business, not only in Europe, but also China, India and North America. As we stated during Investor Day, we will keep you apprised of our progress regarding major project awards throughout 2014.

As previously indicated, however, we will continue to face difficult year-over-year revenue comps through 2014 in the Rail group, following its completion of a large contract with the China Ministry of Railways or MOR. Nevertheless, excluding the China MOR effect, we expect to see high-single digit organic revenue growth in the base business for Rail in 2014.

For Industrial, we look forward to integrating the Hammco acquisition. Together with our Air-X-Changers platform, these are very complementary businesses. In addition, we believe there are other opportunities to further improve the Air-X-Changers business. Our plans include consolidating its operations later this year into a single larger manufacturing plant.

This will lead to further margin expansion over time, but more importantly, will provide the necessary capacity to support continued growth in this very attractive business. We also introduced a new Patterson-Kelley stainless steel boiler line near the end of year, and although it's still very early, the market has responded very well. Called SONIC, it's the smallest and most efficient boiler in its class.

Both Rail and Industrial have made significant progress in building their continuous improvement culture, with very encouraging results. We've also stepped up our CI emphasis in Metals and Minerals, where we expect it to play an important role in supporting the improved operating efficiencies and turnaround that we are committed to in that business.

I'm also extremely pleased with our safety performance for the year. We improved in every key metric over the prior year, but most importantly, we're building a foundational safety culture throughout our businesses. As many of you can appreciate having visited some of our operations, performing safely is a fundamental imperative in the types of locations where we operate, and our leadership in this area is critical to remaining a partner of choice to our customers.

Lastly on the third pillar, developing an active, lean corporate center. By concentrating on a select handful of value add activities, where we will continue to develop our strength, we are building a well-defined and scalable corporate center that can accommodate future growth without adding significant costs.

In summary, we see the year ahead as a period of intense execution on the objectives we laid out in our Investor Day program. They serve as the building blocks for setting up Harsco to deliver top quartile returns for our shareholders in the years ahead. I'll turn the call over now to Nick to go over fourth-quarter results and our outlook for the year.

Thank you, Patrick. My comments will refer to the slides beginning on page 4. Highlights for the fourth quarter include, as Patrick noted, the operating income for the three business units of $39 million was in the middle of our range of guidance. Each business unit actually performed in line with what we expected. Corporate costs for the quarter were about $3 million, so on the next chart, you will see the adjusted operated income figure was $36 million.

We had both revenue and earnings growth in Metals and Minerals and Industrial versus the year ago period on a like-to-like basis. We also, during the quarter, executed our program to reduce stranded corporate costs. You may recall that we've indicated for the full year, corporate costs were about $70 million, $45 million of which are directly related to supporting the business units. The program we have executed reduces the $45 million by a third or $15 million, so the corporate costs going into 2014 are at a run-rate of something around $55 million plus.

The challenges for the quarter, most notably, again, a difficult comparison for the Rail business year-over-year, given the end of the China Ministry of Rail contracts. We have about $40 million negative comp on revenue and $13 million of profit for Rail during the quarter due to the expiration of that contract. Secondly, we had a reported loss for the quarter due to the infrastructure transaction and some related items, as well as to special items in operations that I will talk about in a moment.

Finally, you'll note that we did not record equity income for the Brand joint venture for the fourth quarter. We will be recording the equity income for the joint venture one quarter in arrears, at least through the balance of 2014. You can imagine a very complicated closing, two transactions at one time.

This is a private entity. There are many purchase accounting challenges that come with this transaction and it's, of course, a very international business being managed by a company that was largely domestic in the past. All of those challenges, I think, lead to the decision, which by the way, is fairly common in transactions like this, for the first year, to record the equity earnings one quarter in arrears.

Turning to chart 5, the key performance indicators for the quarter, I would lay it out here both the fourth quarter and the full year versus 2012, for the fourth quarter you can see the revenues were down about 4%. In fact, that was all due to Rail, both Metals and Minerals and Industrial grew revenues in the quarter versus last year. Same with operating income, operating income was down about $13 million or 27% versus fourth quarter of 2012. That is [nearly] all due to the Rail business.

Free cash flow of minus 18 for the quarter was simply affected by transaction costs related to the Infrastructure transaction. For the full year, revenue was down about 5%, two-thirds of that decline was Rail, the balance was Metals and Minerals. The Industrial business grew year-over-year.

Same with operating income; most of that was due to the Rail business and part from Metals and Minerals as well. Free cash flow figure for the full-year of $20 million, includes over $20 million in cash cost related to the transaction. We also expect to still receive a working capital adjustment on the transaction that will benefit cash flow, likely in the first quarter of this year.

Turning to the next chart, number 6; this is the bridge of the operating income and EPS loss, reported loss for the quarter to the adjusted figures that we just discussed. We have it laid out in three categories here. First, those adjustments that relate to the Infrastructure transaction. The loss that was estimated in the previous quarter has been updated and increased by $30 million or $0.37.

That does not relate to any change in our expected value of our investments, but more to an evaluation of certain assets and liabilities on the books of Infrastructure, such as pension liabilities. We also incurred [transaction] costs, as we noted, and then we took an evaluation allowance for some of the operating losses associated with Infrastructure of about $0.14.

In terms of the operations, the next category, Infrastructure's loss for the quarter was $3.4 million. We also, when we announced the deal, stopped depreciating the asset-based infrastructure, so that provided a $14 million benefit for the quarter, from a reported earnings standpoint, so that helps.

Finally, there were two items in operations that we are calling out, each of these items we have disclosed previously as risks that we were monitoring. The first one, a $2.6 million reduction in a receivable from a metals customer in Italy. We wrote down about 40% of that receivable.

In Rail, there is some equipment that performed contract services in the US. We've been trying to sell that equipment for some time. We made the decision in the fourth quarter that they are not easily sellable and we're writing them down to salvage value. Therefore, we took impairment of those assets of about $9 million.

Turning to slide 7, this is the revenue bridge for the quarter versus last year. Again, you can see that Metals and Minerals and Industrial both grew their revenues during the fourth quarter. The $19 million figure for Metals is the net of new and existing growth, offset by about $20 million of revenue loss contracts that we ended. In terms of Industrial, we saw modest single-digit growth in each of the three businesses within Industrial.

Turning to the operating income bridge on chart 8. Metals and Minerals, I indicated that they have grown their earnings in the fourth quarter. Just to help you understand that, they have been realizing about $3 million of consulting costs per quarter to support their simplification initiatives. They also recognized about $3 million in exit costs related to some of the contracts I just mentioned. Collectively, those two items, which, of course, were operational but would not expect to be repeated, would be about $6 million in total.

Turning to chart 9, free cash flow for the quarter, I mentioned before, minus $18 million. Let's focus on the CapEx number of $38 million for the quarter. For the year, CapEx was about $165 million, net of asset sales. As we talk talk about 2014 in a minute, you'll see that we expect CapEx in 2014 to be a good bit higher than 2013.

Let's turn to the outlook for 2014, on slide 10, first beginning with the highlights. Patrick noted that we do expect the operating earnings from the three business segments to increase at a double digit rate in 2014. Metals and Minerals and Industrial we expect to grow 10% to 15%, and the Rail business will be flat. We will walk through in a minute why that is the case.

In terms of Metals and Minerals, we're really not looking for much in terms of revenue growth, that churn that we talked about, of exiting contracts, renewing contracts and winning and implementing new contracts, will wash out to be effectively neutral on revenue. We do expect to see about 100 basis point increase in the gross profit margin in Metals and Minerals for 2014, due to that churn. In Industrial, we expect high single-digit revenue growth. That's a mix of acquired growth and organic growth.

We've also talked about investments that we've made recently in Industrial, most notably the Hammco acquisition. We also have plans to consolidate the manufacturing of four of our facilities and the air exchanger business in Tulsa into a single facility that will both accommodate the expected growth in the business that we expect, as well as provide cost benefits. We also expect, from a manufacturing standpoint beyond what I just discussed, [some very] sizable manufacturing efficiency benefits in Industrial in 2014.

With respect to Rail, if you exclude the impact of the China rail contract, we're looking for high single-digit revenue growth in the business. We are also expecting quite strong gain in manufacturing efficiency in Rail. Finally, the write-down of that equipment that I talked about in the fourth quarter, will result in about $5 million of lower depreciation, in the Rail business in 2014.

In terms of the challenges for the year, the stranded costs will be a headwind for us. We had been allocating about $30 million of corporate cost to Infrastructure. We are also retaining a pension -- a defined pension plan whose cost is between $5 million and $10 million per year. So we need to absorb about $40 million of incremental cost, at corporate. I mentioned earlier that we have reduced about $15 million of those costs.

So, on a net basis, year-over-year, like-to-like, we have $25 million of incremental corporate costs that are really offsetting the incremental earnings in the three business segments. Some of the challenges in Metals and Minerals include quite high capital spending, and capital spending in Metals and Minerals will be about 40% higher than last year. That is $50 million or $60 million, due largely to prior commitments that we had made and a high level of renewals of existing contracts that we expect to renew at much more favorable terms and that's driving, of course in part, the margin lift in the business.

We also have assumed nickel prices will remain at a very weak level around $6.00 They've come down from as high as $10.00, the last 2.5 years. Just to quantify that, the impact of that on operating income in the business, over the past few years has been between $15 million and $20 million of profit, due to weak nickel prices.

At Industrial, while we are seeing some raw material inflation, we expect to continue throughout the year and the Australia market has been quite weak and that is hurting their organic growth year-over-year for the full year. The Rail business, we've talked about the trend of contracts ending. The operating income impact of that in 2014 will be about $9 million for the full year. We will also incur some start-up costs in the Rail business to accommodate the Swiss contract that Patrick noted.

Finally, on the Brand joint venture, we do not yet have available the projections for 2014. We expect them to be very much in line with what we had talked about before. The piece that is missing is -- they will certainly restructure the business and take charges and receive benefits in 2014, those estimates are not yet finalized. When they are, we will probably, in the first-quarter earnings call in May, provide an updated view on 2014 for equity income from Brand.

Another challenge, with respect to Brand, there is an accounting charge that we will take each year of the joint venture that we are paying CD&R. There is an amortization of a discount on those payments that will be about $10 million in the first year -- it is not a cash item -- as fully operating income line, but it does affect net income by about $10 million this year and it declines about $9.5 million per year going forward.

Turning to slide 11, just some specific guidance on a few of our key metrics. Operating income we expect to range from $160 million to $180 million. That translates to EBITDA between $350 million and $370 million. We talked before about this headwind of corporate costs offsetting higher profits in the business units. We do expect the second half of the year to be stronger, due to mostly the phasing of corporate costs as well as the trend line on the renewals in the Metals and Minerals contracts.

Specifically for Q1, we expect it to be the weakest quarter of the year, on a year-over-year basis. We're looking for operating income to be between $20 million and $25 million, that is a decline of $35 million to $45 million versus the first quarter last year.

That is largely due to the corporate cost issue I mentioned, as well as the ongoing consulting to support the Metals business. Just to be clear, we do not include in this guidance any impact, either cost or benefits, of the Metals and Minerals simplification program that we expect to announce in the second quarter.

In terms of free cash flow, cash flow from operations, we expect to actually to be quite a bit stronger in 2014, up about 25% versus the figure in 2013. That is being offset by this higher capital spending that I mentioned, mostly in Metals and Minerals, but also that manufacturing consolidation project I noted.

Industrial will be $12 million or $13 million, and so between the two of those, capital spending will be up in the range of $230 million to $240 million, or about 30% to 40% higher than 2013. Looking ahead a bit to 2015, we certainly expect capital spending to be significantly lower, probably as much as $50 million to $70 million lower than what we will spend in 2014.

Next chart, page 12, return on investment capital, we finished the year around 7%. We expect that figure to grow to 7.5% to 8% by the end of 2014. To be clear, this does not include the impact of the equity income from Brand, so even though in the capital base, we have our investment in that venture, we do not yet have a ROIC calculation.

Any equity income, the effect of that will be about 50 basis points. On that basis we would expect equity income -- return on capital to be in the 8% to 8.5% range. Just as a reminder, if we had not done the infrastructure transaction, the return on capital figure would be about 5.5% for Harsco.

In terms of interest expense, interest expense for 2013 was about $48 million. We expected to be $43 million to $47 million in 2014. That's really the net impact of the pay-down of debt associated with the Infrastructure transaction and slightly higher interest rates and higher debt levels for the base business.

A few more items of guidance on page 13. We have a new balance sheet line called the unit adjustment liability. This is effectively the value of the payment stream that we will expect to make to CD&R over the life of the transaction.

That is effectively a discount to liability and so, as payments are made, we have to amortize that discount and that figure's about $10 million in 2014. As I mentioned, that should decline by $1.5 million per year going forward. As I said, it is accounted for below the operating income line.

We expect the effective tax rate for the year to be between 30% and 32%, although, as always, it will vary from quarter to quarter. As I noted earlier, we will update this guidance to include EPS, once the equity income projection from Brand is finalized and that will likely be in April or May.

Turning to the next chart on 14, I think this just summarizes much of what we've said. This provides a bit of segment commentary for 2014. Beginning with Metals and Minerals, we expect the revenue to increase at low single-digit rates year-over-year, and profit to increase at low double-digit rates, margins expanding about 100 basis points on the operating income line.

In terms of Rail, we expect both revenues and earnings to be roughly flat. Again, that is overcoming about $35 million in revenue and $9 million in profit, a negative comparison versus 2013, due to the China contract. We do see the organic growth being quite attractive. We also have a lower depreciation and the margins, therefore, we expect to stay in the low to mid-teens for operating margins for the Rail business.

For Industrial, high single-digit growth in revenues, low double-digit growth in operating income. We expect the operating margin to increase, maybe 100 basis points again, their margins are in the mid- to high teens.

Corporate costs, I think we've talked about, even though we've reduced corporate cost by $15 million. We are spending back a little bit of that on consulting costs and inflation. Overall, the number to keep in mind is that relative to last year, that the headwind of corporate costs is about $25 million versus 2013.

Operator, Patrick and I are now happy to take any questions.

(Operator Instructions)

Your first question comes from Jeffrey Hammond. Your line is open.

Hello, guys. Just want to address the M&A pipeline. Can you talk about the process that you went through for Hammco, and what the pipeline might look like now for both the rail and industrial segments?

Sure. Good morning, this is Patrick. Let me put in perspective how we're approaching M&A. As we indicated in the Investor Day in December, we've got a very tight criteria and straining as it relates to what kind of opportunities come in the hopper.

Certainly, they need to be very strategic. We are preferring bolt-on opportunities that are kind of very close to the core of a few of our current operating units, that being rail and certainly industrial. Certainly, we go through a very exhaustive process of negotiation and screening, as we did with respect to Hammco.

In terms of the pipeline itself, I would say that our businesses, as well as Nick and I here at corporate, continue to keep a very close eye on what we see as a good funnel of attractive opportunities that are out there. These are opportunities, as you can understand, that take time to cultivate and to make sure that they really are the right fit for us. They do take time.

In the meantime, we are very much focused right now, in 2014, on our high-order priorities of making sure that we turn around the metals and minerals business, that we continue to build out the project pipeline for rail. And make sure that we successfully integrate the acquisition that we have done in industrial, and drive some of the market expansion and growth that Nick alluded to in the outlook.

So, feel good about the pipeline. Keeping it balanced in terms of its relative priority to, again, fixing the core foundation of the businesses that we have today as well.

Okay. Thanks for that.

Also, just more of a housekeeping item. For simplification, that was $3 million -- that totaled $3 million in the fourth quarter? Is that right?

Yes. The $3 million relates just to the consulting costs that were incurred by the metals business to support that transaction. We expect that run rate to remain throughout the first quarter and then tail off after that.

And that is included in your guidance or excluded?

It's included.

Just to add to that, what we indicated earlier in our comments was that we do expect, in the Q1 earnings call, that we will then be able to plan to articulate what we see as the specific actions, the level of restructuring costs, the expected benefits that, right now, are sitting outside of our guidance for 2014 for metals and minerals.

Got it. Okay, I will get back in queue. Thanks, guys.

Your next question comes from Glenn Wortman.

Yes. Good morning, everyone.

Good morning, Glenn.

Sticking with the metals and minerals initiatives, I know you're still evaluating the business, but maybe I'm getting ahead of myself here. Are you just willing to take a stab, at this time, at some preliminary long-term operating margin targets for that business as you move into 2015 and 2016?

I think it's a good question, Glenn. What we will plan to do in the Q1 earnings call later this Spring, is to articulate: What do we see to be the size of the prize in terms of what simplification will yield for us, as well as what we believe to be the opportunity as it relates to the better contract management and continued churn on some of those underperforming contracts?

What we will do is we will frame up a range of potential benefits. Obviously, that would be additive to what we had articulated at the December Investor Day. That will give you an idea as to where would we expect that this business would be able to get to over time. We will be as clear as we can on what the key levers are there, and the assumptions and variables as it relates to that.

I think, as we look at 2014 right now, both for metals but also overall for Harsco, I would say 2014 continues to be an element of transition year. Obviously, when you hear us talk about low-double-digit earnings growth, we are certainly feeling pretty good about that, but I think we are feeling even more positive about 2015.

When you think about the natural lift we are going to get from metals, and the contract churn. When you think about the benefits we are going to get from simplification. When you think about the lower CapEx spend in 2015, based on what Nick alluded to earlier. When you think about the rail projects that we are going to have coming online in late 2015, the benefits from the industrial consolidation that we talked about there, as well as the Hammco synergies, and then the natural lift in equity income for Brand.

As we go forward here, we think all of those things are pretty positive tailwinds for 2015. Again, we will be in a position to be able to articulate more clearly what that range could potentially be in our Q1 earnings call.

Okay. Thanks for that.

On the Industrial side, there were a lot of numbers thrown around there. Excluding Hammco, it looks like you're forecasting maybe flat organic revenue growth this year, or do I have that wrong?

No, that's correct. That's really a combination of very good growth in the North America business, offset by a very, very weak 2014 in Australia. Again, a lot of things there are on hiatus right now and on hold, as a general market environment in LNG. We're expecting that again to [thaw] and strengthen for us as we go into 2015. So, it's positive in North America, offset by the slowdown in Australia. And then, of course, the Hammco growth is really what drives the top line for 2014.

Okay. Thanks for taking my questions.

(Operator Instructions)

Your next question comes from Scott Graham. Your line is open.

Hi, good morning.

Good morning, Scott.

Nick, this is a question for you really -- my first one. The interest expense guidance -- we have the benefit of the closing of Infrastructure with the cash that comes in the door. It doesn't seem to be reflected in that interest expense guidance. Obviously, I'm missing something, so can you connect those dots?

Right. The first thing you have to keep in mind is that we are repaying debt at pretty low rates, right? We're borrowing now with just over 2%. We did retire a bond that was around 5%. Interest rates are quite low. We also had a 25-plus-basis-point increase in our base borrowing costs based on the downgrade by Standard & Poor's.

If you look at our free cash flow guidance for the year, and understand that we still need to finance the dividend and the payment to CD&R and this acquisition that we made. There is an incremental interest expense impact of that. So, you net all of those things together, and the guidance is right there.

Okay. I just thought that -- because we're taking in, like, $300 million, right?

We are. Yes, you've got about a $9-million benefit to interest expense year over year from that transaction. Then you are offsetting about half of that with incremental interest expense on the base cash flows and the higher interest rates.

You are not running the fee through there, are you?

No, we are not.

Okay. All right.

The other question I had for you was -- and this is more housekeeping. The corporate expense line shown in the press release -- that's going to be different in terms of presentation in 2014, of course, from the standpoint of -- and correct me if I'm wrong on this, Nick, but that's going to be all the Infrastructure and pension that you keep, whereas the corporate cost in the business units are going to stay in the business units for reporting purposes?

Correct. The allocation of corporate costs to the three business segments will be about the same as they were in 2013.

Right. And you still -- I'm sorry. (multiple speakers)

Go ahead.

You still have plans on knocking down that number in metals and minerals, right?

Knocking down the allocation to metals and minerals?

Well, knocking down the corporate expense in metals and minerals -- simplification; that's one of the areas that it hits, right?

No, simplification will be addressing the base core cost structure of the metals business, independent of the corporate costs that are allocated to it.

The way to think about it, Scott -- the way we're looking at simplification is -- clearly we're looking at the overall overhead structure of the Company, and specifically as it relates to enabling metals and minerals. Will there be some knock-on benefits? Certainly. But the core focus area here is -- we're looking at simplification in metals as another way to improve our overall overhead cost structure. It won't necessarily hit that corporate cost number that you are alluding to, but it certainly will help us mitigate some of that headwind by just taking overhead cost out of the Company in general.

Right, okay. That's kind of what I was asking. So, in the first quarter, there will be no equity income?

Well, there will be equity income, just it relates to that stub period in Q4 from the time the transaction closed until the end of the year.

Fair enough. (multiple speakers)

We would not expect that to be much.

Going forward, as you record equity income, if you're saying that Brand is going to take a bunch of charges or what have you, will you be able to delineate out those charges as we go forward?

We should be able to, yes.

Great.

Could you talk a little bit about metals and minerals in terms of the current transacting activity? What we are seeing is maybe things slow down a little bit in January, but global steel production has been rising. LSTs were up in the fourth quarter. Are you starting to see, maybe, a little bit more juice in that business from the order rate standpoint, notwithstanding the business that you let roll off, not renew, and that kind of thing? Is the primary the slag business itself, in particular? Are you starting to see a little bit of an improvement in the base orders of that business?

I would say, Scott, that there is a general sense, and you are certainly hearing that from our large customers in terms of what they're saying about 2014, but also what we are seeing in the past quarter that I think we would say we're feeling better about the stability of the market. Although this, again, is a volatile market.

I think you've heard us say before that we are always probably going to be a bit more conservative and cautious on what our outlook for the end market is going to be until such time as there are a series of data points more than one quarter that justify that. But I would say the LST volumes do seem to have stabilized, and I would say there's probably, on balance, a little bit more positive outlook than we had seen before.

As Nick pointed out earlier, one of the big headwinds that we continue to face, at least through the first quarter from a year-over-year comp perspective, is our nickel and scrap prices, which are still at historical lows. Again, we are hopeful that those could improve off their bottoms over the course of the next year or more. But again, we do not have that built or reflected into our outlook for 2014. We want to be able to see it first before we count on it.

And you include that in the slag business, not in the recycling, right?

Yes. It is all aggregated, Scott. (multiple speakers) if we just wade through various parts of our business model.

Okay. Last question for you on this -- metals and minerals again. The prior regime did this whole operating capacity -- capacity utilization -- they kind of gave you that for -- and it wasn't every quarter, but periodically they gave you their estimate of global steel capacity utilization.

Can you talk about where you think that is right now? Is there some type of magic number that it needs to get to, to open the floodgate a little bit for them to give you more business?

I would say that we have seen a stabilization and slight improvement in capacity utilization, Scott. In terms of there being a magic number, we have actually, as a new leadership team, and certainly as I've gotten closer to the business, and Nick has, we tend to back away a little bit as to how bright-line or critical that one metric is.

Because we're talking about 160 different job sites around the world. That is roughly 40% of all the mill sites in the world. It is difficult to have an aggregate number there that makes sense because any given customer's decision as to what they do to turn on or off a furnace or to increase volume and throughput is oftentimes -- I don't want to say it's discrete or standalone, but there are so many variables that go into it, other than what a global industry utilization number is.

Having said that, that is only talking about one piece of our overall business model. It doesn't get into resource recovery and the byproduct sales and other things that have an equally large impact on our bottom line, as well as the top line.

Thanks very much. That was very helpful.

Thank you, Scott.

(Operator Instructions)

There are no further questions at this time.

Okay. Thanks, operator, and everybody joining the call.

Again, in summary, 2013 was obviously a year that we took some very important steps that we believe are going to position Harsco to achieve long-term growth and enhanced profitability, driving better shareholder value. I am obviously very proud of the work the team has done, and am very squarely focused on taking the Company to the next level. We do believe that we have created a foundation here that is going to allow us to build Harsco into a company that consistently achieves sustainable top-quartile returns for shareholders over time.

Obviously, we look forward to continue to update you on our progress throughout the year. Thank you for your continued support. And we'll look forward to speaking to you at our next quarterly earnings call.

This concludes today's conference call. You may now disconnect.