NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include all accounts of Harsco Corporation (the "Company"), all entities in which the Company has a controlling voting interest and variable interest entities required to be consolidated in accordance with U.S. GAAP. Intercompany accounts and transactions have been eliminated among consolidated entities. The Company's management has evaluated all activity of the Company and concluded that subsequent events are properly reflected in the Company's consolidated financial statements and notes as required by U.S. GAAP.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with current year classifications.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short-term investments that are highly liquid in nature and have an original maturity of three months or less.
Restricted Cash
The Company had restricted cash of $3.2 million and $2.5 million at December 31, 2020 and December 31, 2019, respectively, and the restrictions are primarily related to collateral provided for certain guarantees of the Company’s performance.
Inventories
Inventories in the U.S. are principally accounted for using the last-in, first-out ("LIFO") method and are stated at the lower of cost or market. The Company's remaining inventories are accounted for using the first-in, first-out ("FIFO") or average cost methods and are stated at the lower of cost or net realizable value. See Note 5, Inventories, for additional information.
Depreciation
Property, plant and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using, principally, the straight-line method. When property, plant and equipment is retired from service, the cost of the retirement is charged to the allowance for depreciation to the extent of the accumulated depreciation and the balance is charged to income. Long-lived assets to be disposed of by sale are not depreciated while they are classified as held-for-sale.
Leases
The Company leases certain property and equipment under noncancelable lease agreements. The Company determines if a contract or arrangement contains a lease at inception. All leases are evaluated and classified as either an operating or finance lease. A lease is classified as a finance lease if any of the following criteria are met: (i) ownership of the underlying asset transfers to the Company by the end of the lease term; (ii) the lease contains an option to purchase the underlying asset that the Company is reasonably expected to exercise; (iii) the lease term is for a major part of the remaining economic life of the underlying asset; (iv) the present value of the sum of lease payments and any residual value guaranteed by the Company equals or exceeds substantially all of the fair value of the underlying asset; or (v) the underlying asset is of a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease that does not meet any of the criteria to be classified as a finance lease is classified as an operating lease.
Operating leases are included as Right-of-use assets, net, Current portion of operating lease liabilities, and Operating lease liabilities on the Company's Consolidated Balance Sheets. ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. As most of the Company’s leases do not provide an implicit rate for use in determining the present value of future payments, the Company uses an incremental borrowing rate. This incremental borrowing rate reflects the creditworthiness of the Company for a lending period commensurate to the term of the lease and the standard lending practices related to such loans in the respective jurisdiction where the underlying assets are located. ROU assets also include any lease payments made and exclude any lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term, including rent abatement periods and rent holidays. Certain of the Company's leases are subject to annual changes in an index or are subject to adjustments for which the amounts are not readily determinable at lease inception. While lease liabilities are not remeasured as a result of changes to these costs, changes are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.
Finance leases are included as Property, plant and equipment, net; Current maturities of long-term debt and Long-term debt on the Company's Consolidated Balance Sheets. Finance lease costs are split between depreciation expense related to the asset and interest expense on the lease liability, using the effective rate charged by the lessor.
The Company has lease agreements with both lease and non-lease components, which the Company has elected to account for as a single lease component. Additionally, the Company has elected not to record short-term leases, those with expected terms of twelve months or less, on the Company's Consolidated Balance Sheets. Certain lease agreements include fixed escalations, while others include rental payments adjusted periodically for inflation. On January 1, 2019, the Company adopted changes issued by the FASB related to accounting for leases. See Note 8, Debt and Credit Agreements; and Note 9, Leases, for additional information on leases.
Business Combinations and Goodwill
The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, all assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, be recorded at their respective fair values at the date of acquisition. The excess of purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill. The determination of fair value of assets acquired and liabilities assumed requires numerous estimates and assumptions with respect to the timing and amounts of cash flow projections, revenue growth rates, customer attrition rates, discount rates and useful lives. Such estimates are based upon assumptions believed to be reasonable, and when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with corresponding offsets to goodwill.
In accordance with U.S. GAAP, goodwill is not amortized and is tested for impairment at least annually or more frequently if indicators of impairment exist or if a decision is made to dispose of a business. Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment for which discrete financial information is available. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include declining cash flows or operating losses at the reporting unit level, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel or a more likely than not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, among others.
In applying the goodwill impairment test, the Company has the option to perform a qualitative test or a quantitative test . Under the qualitative test, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific events. If after assessing these qualitative factors, the Company determines it is “more-likely-than-not” that the fair value of the reporting unit is less than the carrying value, the Company would perform a quantitative test.
The quantitative approach of testing for goodwill impairment involves comparing the current fair value of each reporting unit to the carrying value, including goodwill. The Company uses a discounted cash flow model (“DCF model”) to estimate the current fair value of reporting units, as management believes forecasted operating cash flows are the best indicator of current fair value. A number of significant assumptions and estimates are involved in the preparation of DCF models including future revenues and operating margin growth, the weighted-average cost of capital (“WACC”), tax rates, capital spending, pension funding, the impact of business initiatives and working capital projections. These assumptions and estimates may vary significantly among reporting units. DCF models are based on approved long-range plans for the early years and historical relationships and projections for later years. WACC rates are derived from internal and external factors including, but not limited to, the average market price of the Company's stock, shares outstanding, book value of the Company's debt, the long-term risk-free interest rate, and both market and size-specific risk premiums. Due to the many variables noted above and the relative size of the Company's goodwill, differences in assumptions may have a material impact on the results of the Company's annual goodwill impairment testing. If the net book value of a reporting unit were to exceed the current fair value, then an impairment charge would be recognized as the difference between the fair value and the carrying value. See Note 7, Goodwill and other Intangible Assets, for additional information.
Long-Lived Assets Impairments (Other than Goodwill)
Long-lived assets (or asset groups) are reviewed for impairment when events and circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Long-lived assets (or asset groups) are reviewed for impairment when events and circumstances indicate the book value of an asset (or asset group) may be impaired. The Company's policy is to determine if an impairment loss exists when it is determined that the carrying amount of the asset (or asset group) exceeds
the sum of the expected undiscounted future cash flows resulting from use of the asset (or asset group) and its eventual disposition. Impairment losses are measured as the amount by which the carrying amount of the asset (or asset group) exceeds its fair value, normally as determined in either open market transactions or through the use of a DCF model. Long-lived assets (or asset groups) to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. See Note 18, Other (Income) Expenses, Net for additional information.
Deferred Financing Costs
The Company has incurred debt issuance costs which are recognized as a reduction of Long-term debt on the Consolidated Balance Sheets. Debt issuance costs are amortized and recognized as interest expense over the contractual term of the related indebtedness or shorter period if appropriate based upon contractual terms. Whenever indebtedness is modified from its original terms, an evaluation is made whether an accounting modification or extinguishment has occurred in order to determine the accounting treatment for debt issuance costs related to the debt modification.
Revenue Recognition
The Company recognizes revenues to depict the transfer of promised services and products to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services or products. Service revenues include the Harsco Clean Earth Segment and the service components of the Harsco Environmental and Harsco Rail Segments. Product revenues include portions of Harsco Environmental and Harsco Rail Segments.
Harsco Environmental - This Segment provides on-site services, under long-term contracts, for material logistics; product quality improvement and resource recovery from iron, steel and metals manufacturing; manufactures and sells industrial abrasives and roofing granule products; and manufactures aluminum dross and scrap processing systems.
•Service revenues are recognized over time as the customer simultaneously receives the benefits provided by the Company's performance. The Company utilizes an output method based on work performed (liquid steel tons processed, weight of material handled, etc.) to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company. Transaction prices are based on contractual terms, which may include both fixed and variable portions. The fixed portion is recognized as earned (normally monthly) over the contractual period. The variable portion is recognized as services are performed and differs based on the volume of services performed. Given the long-term nature of these arrangements, most contracts permit periodic adjustment of either the variable or both the fixed and variable portions based on the changes in macroeconomic indicators, including changes in commodity prices. Transaction prices, when the standalone selling price is not directly observable, are allocated to performance obligations utilizing an expected cost plus a margin approach. Amounts are typically billed and payable on a monthly basis as services are performed.
•Product revenues are recognized at the point when control transfers to the customer. Control generally transfers at the point of shipment for domestic orders and in accordance with the international commercial terms included in contracts for export sales. Transaction prices are based on contractual terms, which are generally fixed and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Amounts are billed and payable upon completion of each transaction.
•Product revenues in the aluminum dross and scrap process systems business are generally recognized over time as control is transferred to the customer. Control transfers over time because aluminum dross and scrap systems are customized, have no alternate use and the Company has an enforceable right to payment. The Company utilizes an input method based on costs incurred ("cost-to-cost method") to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company. Transaction prices are based on contractual terms, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. The Company may receive periodic payments associated with key milestones with any remaining consideration billed and payable upon completion of the transaction.
Harsco Clean Earth - This Segment provides specialty waste processing and beneficial reuse solutions for hazardous wastes, contaminated materials and dredged volumes.
•Revenues are recognized over time as the customer simultaneously receives the benefits provided by the Company's performance. The Company utilizes an output method based on the amount of materials received for processing to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company. Transaction prices are based on contractual terms which are generally fixed for hazardous waste and contaminated materials and which is variable (based on volumes) for dredged material. Fixed amounts are recognized as earned over the contractual period and variable amounts are recognized as services are performed and differ based
on the volume of services performed. Transaction prices, when the standalone selling price is not directly observable, are allocated to performance obligations utilizing an expected cost plus a margin approach. Amounts are typically billed and payable on a monthly basis.
Harsco Rail - This Segment sells railway track maintenance equipment, after-market parts, Protran/safety equipment and provides railway track maintenance services.
•For the majority of railway track maintenance equipment sales, revenue is recognized at the point when control transfers to the customer. Control generally transfers at the point of shipment for domestic orders and in accordance with the international commercial terms included in contracts for export sales. In certain railway track maintenance equipment sales, revenue is recognized over time because such equipment is highly customized, has no alternate use and the Company has an enforceable right to payment. The Harsco Rail Segment uses the cost-to-cost method to measure progress because it is the measure that best depicts the transfer of control to the customer, which occurs as the Harsco Rail Segment incurs costs under the contracts. Under the cost-to-cost method, the extent of progress towards completion is based on the ratio of costs incurred to total estimated costs at completion which includes both actual costs already incurred and the estimated costs to complete. Accounting for contracts with customers using the cost-to-cost method requires significant judgment relative to assessing risks, estimating contract revenues (including estimates of variable consideration, if applicable, as well as estimating any liquidating damages or penalties related to performance), estimating contract costs (including estimating engineering costs to design the machine and the material, labor and overhead manufacturing costs to build the machine); making assumptions for schedule and technical items; properly executing the engineering and design phases consistent with customer expectations; the availability and costs of labor and material resources; productivity; and evaluating whether a significant financing component is present. Due to the number of years it may take to complete certain contracts and the scope and nature of the work required to be performed on those contracts, estimating total revenues and costs at completion is inherently complicated and subject to many variables. Transaction prices are based on contracted terms, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing either the adjusted market assessment or expected cost plus a margin approach. For certain transactions, the Company receives periodic payments associated with key milestones. In limited instances, those payments are intended to provide financing with such transactions being treated as including a significant financing component. Any remaining consideration is billed and payable upon completion of the transaction. Railway track maintenance equipment revenue of approximately $142 million was recognized using the cost-to-cost method method in 2020.
•For after-market parts sales and Protran/safety equipment, revenue is recognized at the point when control transfers to the customer. Control generally transfers to the customer at the point of shipment for domestic orders and in accordance with the international commercial terms included in contracts for export sales. Transaction prices are based on contracted terms, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Amounts are billed and payable upon completion of each contract.
•For railway track maintenance services, revenue is recognized over time as the customer simultaneously receives the benefits provided by the Company's performance. The Company utilizes an appropriate output method based on work performed (feet, miles, shifts worked, etc.) to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company. Transaction prices are based on contracted terms, which are generally variable. The variable portion is recognized as services are performed and differs based on the value of services. Given the long-term nature of these arrangements, most contracts permit periodic adjustment based on the changes in macroeconomic indicators. Transaction prices, when the standalone selling price is not directly observable, are allocated to performance obligations utilizing an expected cost plus a margin approach. Amounts are typically billed and payable on a monthly basis as services are performed.
The Company has elected to utilize the following practical expedients on an ongoing basis:
•The Company has not adjusted the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers the promised good or services to the customer and when the customer pays for that good or service would be one year or less; and
•The Company has elected to exclude disclosures related to unsatisfied performance obligations where the related contract has a duration of one year or less; or where the consideration is entirely variable. Accordingly, the Company's disclosure related to unsatisfied performance obligations is limited to the railway track maintenance equipment in the Harsco Rail Segment and the fixed portion of fees related to metals services in the Harsco Environmental Segment.
Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Additionally, in certain contracts, the Company facilitates shipping and handling activities after control has transferred to the customer. The Company has elected to record all shipping and handling activities as costs to fulfill a contract. In situations where the shipping and handling costs have not been incurred at the time revenue is recognized, the respective shipping and handling costs are accrued.
On January 1, 2018, the Company adopted changes, with subsequent amendments, issued by the FASB related to the recognition of revenue from contracts with customers. The Company chose to implement the impact of the FASB changes utilizing the modified retrospective method.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records deferred tax assets to the extent that the Company believes that these assets will more likely than not be realized. In making such determinations, the Company considers all available positive and negative evidence, including future reversals of existing deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial results. In the event the Company was to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be made that would reduce the provision for income taxes.
The Company prepares and files tax returns based on interpretation of tax laws and regulations and records its provision for income taxes based on these interpretations. Uncertainties may exist in estimating the Company's tax provisions and in filing tax returns in the many jurisdictions in which the Company operates, and as a result these interpretations may give rise to an uncertain tax position. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on its technical merits. Each subsequent period the Company determines if existing or new uncertain tax positions meet a more likely than not recognition threshold and adjusts accordingly.
The Company recognizes interest and penalties related to unrecognized tax benefits within Income tax expense in the accompanying Consolidated Statements of Operations. Accrued interest and penalties are included in Other liabilities on the Consolidated Balance Sheets.
The significant assumptions and estimates described in the preceding paragraphs are important contributors to the effective tax rate each year.
See Note 11, Income Taxes, for additional information.
Accrued Insurance and Loss Reserves
The Company retains a significant portion of the risk for U.S. workers' compensation, U.K. employers' liability, automobile, general and product liability losses. During 2020, 2019 and 2018, the Company recorded insurance expense from continuing operations related to these lines of coverage of $23.4 million, $15.4 million and $13.5 million, respectively. Reserves have been recorded that reflect the undiscounted estimated liabilities including claims incurred but not reported. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Changes in the estimates of the reserves are included in net income (loss) in the period determined. During 2020, 2019 and 2018, the Company recorded insurance reserve adjustments that decreased pre-tax insurance expense from continuing operations for self-insured programs by $2.1 million, $1.5 million and $2.0 million, respectively. At December 31, 2020 and 2019, the Company has recorded liabilities of $28.3 million and $28.7 million, respectively, related to both asserted as well as unasserted insurance claims. Included in the balances at December 31, 2020 and 2019 were $5.2 million and $3.7 million, respectively, of recognized liabilities covered by insurance carriers. Amounts estimated to be paid within one year have been included in current caption, Insurance liabilities, with the remainder included in non-current caption, Insurance liabilities, on the Consolidated Balance Sheets.
Warranties
The Company provides for warranties of certain products as they are sold. The following table summarizes the warranty activity for 2020, 2019 and 2018:
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(In thousands)
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2020
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2019
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|
2018
|
Warranty reserves, beginning of the year
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$
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5,920
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|
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$
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5,243
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|
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$
|
5,486
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|
Accruals for warranties issued during the year
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|
5,335
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|
|
4,744
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|
|
3,837
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|
Reductions related to pre-existing warranties
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|
(2,418)
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|
|
(2,748)
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|
|
(3,320)
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Acquisitions (See Note 3)
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|
—
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|
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—
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|
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249
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|
Warranties paid
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|
(2,356)
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|
|
(1,259)
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|
|
(942)
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Other (principally foreign currency translation)
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|
131
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|
|
(60)
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|
|
(67)
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|
Warranty reserves, end of the year
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|
$
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6,612
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|
|
$
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5,920
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|
|
$
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5,243
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|
Warranty expense and payments are incurred principally in the Harsco Rail Segment. Warranty activity may vary from year to year depending upon the mix of revenues and contractual terms related to product warranties.
Foreign Currency Translation
The financial statements of the Company's subsidiaries outside the U.S., except for those subsidiaries located in highly inflationary economies and those entities for which the U.S. dollar is the currency of the primary economic environment in which the entity operates, are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates at the balance sheet date. Resulting translation adjustments are recorded in the cumulative translation adjustment account, a separate component of AOCI on the Consolidated Balance Sheets. Income and expense items are translated at average monthly exchange rates. Gains and losses from foreign currency transactions are included in Operating income from continuing operations. For subsidiaries operating in highly inflationary economies, and those entities for which the U.S. dollar is the currency of the primary economic environment in which the entity operates, gains and losses on foreign currency transactions and balance sheet translation adjustments are included in Operating income from continuing operations.
Financial Instruments and Hedging
The Company has operations throughout the world that are exposed to fluctuations in related foreign currencies in the normal course of business. The Company seeks to reduce exposure to foreign currency fluctuations through the use of forward exchange contracts. The Company does not hold or issue financial instruments for trading purposes and it is the Company's policy to prohibit the use of derivatives for speculative purposes. The Company has a Foreign Currency Risk Management Committee that meets periodically to monitor foreign currency risks.
The Company executes foreign currency exchange forward contracts to hedge transactions for firm purchase commitments, to hedge variable cash flows of forecasted transactions and for export sales denominated in foreign currencies. These contracts are generally for 90 days or less; however, where appropriate, longer-term contracts may be utilized. For those contracts that are designated as qualified cash flow hedges, gains or losses are recorded in AOCI on the Consolidated Balance Sheets.
The Company uses interest rate swaps in conjunction with certain debt issuances in order to secure a fixed interest rate. The interest rate swaps are recorded on the Consolidated Balance Sheets at fair value, with changes in value attributed to the effect of the swaps’ interest spread and changes in the credit worthiness of the counter-parties recorded in AOCI.
Amounts recorded in AOCI on the Consolidated Balance Sheets are reclassified into operations in the same period or periods during which the hedged forecasted transaction affects income. The cash flows from these contracts are classified consistent with the cash flows from the transaction being hedged (e.g., the cash flows related to contracts to hedge the purchase of fixed assets are included in cash flows from investing activities, etc.). The Company also enters into certain forward exchange contracts that are not designated as hedges. Gains and losses on these contracts are recognized in operations based on changes in fair market value. For fair value hedges of a firm commitment, the gain or loss on the derivative and the offsetting gain or loss on the hedged firm commitment are recognized currently in operations.
See Note 15, Financial Instruments, for additional information.
Earnings Per Share
Basic earnings per share are calculated using the weighted-average shares of common stock outstanding, while diluted earnings per share reflect the dilutive effects of stock-based compensation. Dilutive securities are not included in the computation of loss per share when the Company reports a net loss from continuing operations as the impact would be anti-dilutive. All share
and per share amounts are restated for any stock splits and stock dividends that occur prior to the issuance of the financial statements. See Note 13, Capital Stock, for additional information.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
Impact of COVID-19
Beginning in early 2020, overall global economic conditions were significantly impacted by COVID-19. The continuing impact of COVID-19 on the Company varies by end market as well as local conditions (including applicable government mandates) and is continually evolving. The ultimate duration and impact of COVID-19 on the Company and its customers' operations is presently unclear, though the Company continues to operate as a provider of certain essential services in the U.S and other countries. The Company continues to take significant and proactive actions to protect all stakeholders and to minimize the operational and financial impacts of COVID-19 where possible.
The Company did not record any long-lived asset impairments, indefinite-lived asset impairments, goodwill impairments, significant inventory write-downs or incremental accounts receivable reserves for current expected credit losses during the year ended December 31, 2020. However such charges are possible in future periods, which could have an adverse effect on the Company's future results of operations, cash flows, or financial condition.
2. Recently Adopted and Recently Issued Accounting Standards
The following accounting standards have been adopted in 2020:
On January 1, 2020 the Company adopted changes issued by the FASB which updated the impairment model for credit losses by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. Provisions for receivables are recorded as Allowance for expected credit losses, replacing the previously utilized Allowance for doubtful accounts. Other than changes in disclosure, these changes did not have a material impact on the Company's consolidated financial statements as the calculation of expected credit losses did not yield results that were materially different from the methodology previously utilized by the Company. See Note 4, Accounts Receivable and Note Receivable for additional information.
On January 1, 2020 the Company adopted changes issued by the FASB that removed the second step of the annual goodwill impairment test, which required a hypothetical purchase price allocation. The changes provide that the amount of goodwill impairment will be equal to the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance remains largely unchanged. The qualitative or quantitative impairment test will continue to be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. These changes did not have a material impact on the Company's consolidated financial statements.
On January 1, 2020 the Company adopted changes issued by the FASB which modified the disclosure requirements for fair value measurements. The amendments in this update remove the requirement to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, and the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. The changes require disclosure of changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Other than required expanded disclosures, the adoption of these changes did not have a material impact on the Company's consolidated financial statements.
On December 31, 2020 the Company adopted changes issued by the FASB which modified the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The changes remove the requirements to disclose: amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year; the amount and timing of plan assets expected to be returned to the employer and the effects of a one-percentage point change in assumed health care cost trend rates. The update also requires disclosure of an
explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. These changes did not have a material impact on the Company’s consolidated financial statements.
The following accounting standards have been issued and become effective for the Company at a future date:
In December 2019 the FASB issued changes which are intended to reduce complexity and simplify the accounting for income taxes in accordance with U.S. GAAP by removing certain exceptions related to investments, intraperiod allocations and interim calculations and clarifying existing guidance to improve consistent application. The changes become effective for the Company on January 1, 2021. Management concluded that these changes will not have a material impact on the Company's consolidated financial statements.
In March 2020 the FASB issued changes that provide companies with optional guidance to ease the potential accounting burden associated with transitioning from reference rates that are expected to be discontinued. In response to the concerns about risks of IBORs and, particularly, the risk of cessation of LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The changes provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued additional clarification changes. The changes can be adopted no later than December 31, 2022 with early adoption permitted. Management does not believe these changes will have a material impact on its consolidated financial statements.
In August 2020, the FASB issued changes which simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The changes can be adopted no later than January 1, 2022, with early adoption permitted. Management has concluded that this standard will not have an impact on its consolidated financial statements.
3. Acquisitions and Dispositions
ESOL
On April 6, 2020 the Company completed the previously announced acquisition of 100% of ESOL, an established waste transportation, processing and services provider with a comprehensive portfolio of disposal solutions for customers primarily across the industrial, retail and healthcare markets from Stericycle, Inc. for $429.0 million of cash consideration, inclusive of post-closing adjustments. In addition, as part of the acquisition, the Company entered into a non-compete agreement with Stericycle, Inc. Concurrent to the ESOL acquisition, the Company entered into an agreement with Stericycle Inc. related to certain Stericycle, Inc. customers who receive services from both ESOL and other Stericycle, Inc. businesses under a single contractual arrangement. The revenue pertaining to services rendered to these customers are invoiced centrally through Stericycle, Inc. billing systems and ESOL's portion of the revenue, less a management fee, is then distributed to the Company.
The preliminary fair value recorded for the assets acquired and liabilities assumed for ESOL is as follows:
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Preliminary Valuation
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(In millions)
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April 6
2020
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Measurement Period Adjustments
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December 31
2020
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Cash and cash equivalents
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$
|
0.4
|
|
|
$
|
—
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|
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$
|
0.4
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|
Trade accounts receivable
|
|
124.1
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|
|
(1.2)
|
|
|
122.9
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Inventory
|
|
5.0
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|
|
—
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|
|
5.0
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|
Other current assets
|
|
0.7
|
|
|
(0.4)
|
|
|
0.3
|
|
Property, plant and equipment
|
|
105.3
|
|
|
(3.1)
|
|
|
102.2
|
|
Right-of-use assets
|
|
56.0
|
|
|
—
|
|
|
56.0
|
|
Goodwill
|
|
152.0
|
|
|
0.1
|
|
|
152.1
|
|
Intangible assets
|
|
161.0
|
|
|
—
|
|
|
161.0
|
|
Other assets
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Accounts payable
|
|
(48.6)
|
|
|
(1.5)
|
|
|
(50.1)
|
|
Accrued expenses
|
|
(17.5)
|
|
|
(2.0)
|
|
|
(19.5)
|
|
Current portion of operating lease liabilities
|
|
(16.6)
|
|
|
—
|
|
|
(16.6)
|
|
Other current liabilities
|
|
(6.4)
|
|
|
—
|
|
|
(6.4)
|
|
Environmental liabilities
|
|
(24.4)
|
|
|
—
|
|
|
(24.4)
|
|
Deferred income taxes
|
|
(15.5)
|
|
|
(1.7)
|
|
|
(17.2)
|
|
Operating lease liabilities
|
|
(39.4)
|
|
|
—
|
|
|
(39.4)
|
|
Total identifiable net assets of ESOL
|
|
436.3
|
|
|
(9.8)
|
|
|
426.5
|
|
Non-compete agreement
|
|
2.5
|
|
|
—
|
|
|
2.5
|
|
Total identifiable net assets of ESOL, including non-compete agreement
|
|
$
|
438.8
|
|
|
$
|
(9.8)
|
|
|
$
|
429.0
|
|
The purchase price allocation presented above is preliminary. We continue to refine our purchase price allocation, principally income taxes and goodwill, and expect to finalize during the first quarter of 2021.
The goodwill is primarily attributed to expected operational efficiencies and synergies from the expanded geographical scale of hazardous waste processing facilities resulting from combining the ESOL business with the existing Clean Earth business of the Company, as well as the value associated with the assembled workforce of ESOL. The Company expects $36.8 million of goodwill to be deductible for income tax purposes through 2030.
The following table details the preliminary valuation of identifiable intangible assets and amortization periods for ESOL and the non-compete agreement entered into by the Company upon acquisition of ESOL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Valuation
|
(Dollars in millions)
|
|
Weighted-Average Amortization Period
|
|
April 6
2020
|
|
Measurement Period Adjustments
|
|
December 31
2020
|
Permits and rights
|
|
22 years
|
|
$
|
138.0
|
|
|
$
|
—
|
|
|
$
|
138.0
|
|
Customer relationships
|
|
10 years
|
|
23.0
|
|
|
—
|
|
|
23.0
|
|
Total identifiable intangible assets of ESOL
|
|
|
|
161.0
|
|
|
—
|
|
|
161.0
|
|
Non-compete agreement
|
|
4 years
|
|
2.5
|
|
|
—
|
|
|
2.5
|
|
Total identifiable intangible assets acquired
|
|
|
|
$
|
163.5
|
|
|
$
|
—
|
|
|
$
|
163.5
|
|
The Company valued the identifiable intangible assets using methodologies under the income approach including the multi-period excess earnings method, the distributor method, and the with-and-without method. The purchase price allocation for ESOL is not final and the fair value of intangible assets and goodwill may vary from those reflected in the Company's consolidated financial statements at December 31, 2020.
ESOL contributed revenue of $368.0 million and operating income of $7.4 million for the twelve months ended December 31, 2020. The operations of ESOL have been combined and included as part of the Harsco Clean Earth Segment.
The year ended December 31, 2020 and 2019 include ESOL direct acquisition and integration costs of $49.0 million and $7.3 million, respectively, which are included in the Selling, general and administrative expenses, within the Corporate function, in the Company's Consolidated Statements of Operations. In addition to the acquisition and integration costs reflected
in the Company's Consolidated Statements of Operations, the debt issuance costs associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, as Long-term debt on the Company's Consolidated Balance Sheets. See Note 8, Debt and Credit Agreements, for additional information.
Clean Earth
On June 28, 2019, the Company acquired 100% of the outstanding stock of Clean Earth, one of the largest U.S. providers of specialty waste processing and beneficial reuse solutions for hazardous wastes, contaminated materials and dredged volumes, for an enterprise valuation of approximately $625 million on a cash free, debt free basis, subject to normal working capital adjustments. The Company transferred approximately $628 million of cash consideration and agreed to reimburse the sellers for any usage of assumed net operating losses in a post-closing period for up to five years. During the year ended December 31, 2020, the Company expensed an additional $2.3 million related to the expected reimbursement of these net operating losses of which the present value is now estimated at approximately $11 million. See Footnote 18, Other (Income) Expenses, Net, for additional details.
The fair value recorded for the assets acquired and liabilities assumed for Clean Earth is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final
|
(In millions)
|
|
June 28,
2019
|
|
Measurement Period Adjustments (a)
|
|
December 31
2020
|
Cash and cash equivalents (b)
|
|
$
|
42.8
|
|
|
$
|
(39.2)
|
|
|
$
|
3.6
|
|
Trade accounts receivable, net
|
|
63.7
|
|
|
(1.2)
|
|
|
62.5
|
|
Other receivables
|
|
0.8
|
|
|
1.3
|
|
|
2.1
|
|
Other current assets
|
|
8.7
|
|
|
(1.4)
|
|
|
7.3
|
|
Property, plant and equipment
|
|
75.6
|
|
|
1.4
|
|
|
77.0
|
|
Right-of-use assets
|
|
14.4
|
|
|
11.4
|
|
|
25.8
|
|
Goodwill
|
|
313.8
|
|
|
16.8
|
|
|
330.6
|
|
Intangible assets
|
|
261.1
|
|
|
(18.9)
|
|
|
242.2
|
|
Other assets
|
|
4.0
|
|
|
(2.8)
|
|
|
1.2
|
|
Accounts payable
|
|
(23.0)
|
|
|
(0.1)
|
|
|
(23.1)
|
|
Acquisition consideration payable (b)
|
|
(39.2)
|
|
|
39.2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
(18.0)
|
|
|
(1.7)
|
|
|
(19.7)
|
|
Net deferred taxes liabilities
|
|
(51.2)
|
|
|
5.5
|
|
|
(45.7)
|
|
Operating lease liabilities
|
|
(11.1)
|
|
|
(8.4)
|
|
|
(19.5)
|
|
Other liabilities
|
|
(6.5)
|
|
|
(2.1)
|
|
|
(8.6)
|
|
Total identifiable net assets of Clean Earth
|
|
$
|
635.9
|
|
|
$
|
(0.2)
|
|
|
$
|
635.7
|
|
(a) The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
(b) Acquisition consideration payable represents a portion of the cash consideration not paid out until July 2019.
The goodwill is attributable to strategic benefits, including enhanced operational and financial scale, as well as product and market diversification that the Company expects to realize. The Company expects $16.3 million of goodwill to be deductible for income tax purposes through 2033.
The following table details the preliminary valuation of identifiable intangible assets and amortization periods for Clean Earth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final
|
(Dollars in millions)
|
|
Weighted-Average Amortization Period
|
|
Preliminary
Valuation
June 28, 2019
|
|
Measurement Period Adjustments (c)
|
|
December 31
2020
|
Permits
|
|
18 years
|
|
$
|
176.1
|
|
|
$
|
(6.0)
|
|
|
$
|
170.1
|
|
Customer relationships and backlog
|
|
8 years
|
|
33.4
|
|
|
(12.9)
|
|
|
20.5
|
|
Air rights
|
|
Usage based (d)
|
|
25.6
|
|
|
—
|
|
|
25.6
|
|
Trade names
|
|
12 years
|
|
26.0
|
|
|
—
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets of Clean Earth
|
|
|
|
$
|
261.1
|
|
|
$
|
(18.9)
|
|
|
$
|
242.2
|
|
(c) The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
(d) The Company estimates that based on current usage that the expected useful life would be 27 years.
The Company valued the identifiable intangible assets using an income-based approach that utilized either the multi-period excess earnings method or the relief from royalty method.
The year ended December 31, 2019 include Clean Earth direct acquisition costs of $15.2 million which are included in Selling, general and administrative expenses, within the Corporate function, in the Company’s Consolidated Statements of Operations. In addition to the acquisition costs reflected in the Company’s Consolidated Statements of Operations, the debt issuance costs associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, as Long-term debt on the Company’s Consolidated Balance Sheets. See Note 8, Debt and Credit Agreements, for additional information.
Included in the liabilities acquired was a contingent consideration liability resulting from a prior Clean Earth acquisition. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized on the Consolidated Statements of Operations during the period in which the change occurs. The following table reflects the changes in the fair value of contingent consideration which occurred since acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
June 28, 2019 through December 31, 2019
|
|
|
Balance at beginning of year
|
|
$
|
3,400
|
|
|
$
|
3,100
|
|
|
|
Payment
|
|
(2,342)
|
|
|
(525)
|
|
|
|
Fair value adjustment
|
|
112
|
|
|
825
|
|
|
|
Balance at end of year
|
|
$
|
1,170
|
|
|
$
|
3,400
|
|
|
|
Pro forma financial information
The pro forma information below gives effect to the Clean Earth acquisition as if it had been completed on January 1, 2018 and the ESOL acquisition as if it had been completed on January 1, 2019. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisition been completed on the above dates, nor is it necessarily indicative of future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition and does not reflect the additional revenue opportunities following the acquisition. The pro forma information below includes adjustments to reflect additional depreciation and amortization expense based on the estimated fair value and useful lives of intangible assets and fixed assets acquired; includes additional interest expense of approximately $4.7 million for the year ended December 31, 2020 and approximately $39.9 million for the year ended December 31, 2019 on the acquisitions related borrowings used to finance the acquisitions and excludes certain directly attributable acquisition and integration costs and historic interest expense. These pro forma adjustments are subject to change as additional analysis is performed. The values assigned to the assets acquired and liabilities assumed are based on preliminary valuations, for the ESOL acquisition, and are subject to change as the Company obtains additional information during the measurement period. In addition, the historical ESOL results include $8.9 million and $35.7 million for the years ended December 31, 2020 and 2019, respectively, of corporate expenses charged to ESOL from Stericycle, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
(unaudited)
|
(In millions)
|
|
2020
|
|
2019
|
Pro forma revenues
|
|
$
|
1,994.5
|
|
|
$
|
2,185.2
|
|
|
|
|
|
|
Pro forma net income (including discontinued operations) (e)
|
|
0.1
|
|
|
471.3
|
|
(e) Pro forma net income for 2020 includes the after tax gains on the sale of IKG of approximately $9 million, and the 2019 includes the after-tax gains on the sale of AXC and PK of approximately $454 million.
Altek
In May 2018, the Company acquired Altek, a U.K.-based manufacturer of market-leading products that enable aluminum producers and recyclers to manage and efficiently extract value from critical byproduct streams, reduce byproduct generation and improve operating productivity. The Company acquired Altek, on a debt and cash free basis, for a purchase price of £45 million (approximately $60 million) in cash, with the potential for up to £25 million (approximately $33 million) in additional contingent consideration through 2021 subject to the future financial performance of Altek. The cash consideration transferred included payments of $57.4 million, inclusive of normal working capital adjustments. In addition, the Company recognized contingent consideration with an initial fair value of $12.1 million as of the acquisition date. Altek's revenues and operating results have been included in the results of the Harsco Environmental Segment. Inclusion of pro forma financial information for this transaction is not necessary as the acquisition is immaterial to the Company's results of operations.
The fair value recorded for the assets acquired and liabilities assumed for Altek is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final Valuation
|
(In millions)
|
|
June 30
2018
|
|
Measurement Period Adjustments (f)
|
|
March 31
2019
|
Cash and cash equivalents
|
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
Net working capital
|
|
(1.5)
|
|
|
0.2
|
|
|
(1.3)
|
|
Property, plant and equipment
|
|
3.3
|
|
|
—
|
|
|
3.3
|
|
Intangible assets
|
Just
|
52.5
|
|
|
0.2
|
|
|
52.7
|
|
Goodwill
|
|
20.9
|
|
|
1.6
|
|
|
22.5
|
|
Net deferred tax liabilities
|
|
(8.5)
|
|
|
—
|
|
|
(8.5)
|
|
Other liabilities
|
|
(0.3)
|
|
|
—
|
|
|
(0.3)
|
|
Total identifiable net assets of Altek
|
|
$
|
68.1
|
|
|
$
|
2.0
|
|
|
$
|
70.1
|
|
(f) The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
The initial fair value of contingent consideration was estimated using a probability simulation model which uses assumptions and estimates to forecast a range of outcomes for the contingent consideration. Key inputs to the model include projected earnings before interest, tax, depreciation and amortization; the discount rate; the projection risk neutralization rate; and volatility, which are Level 3 data. The Company will continue to assess these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized on the Consolidated Statements of Operations during the period in which the change occurs. The following table reflects the changes in the fair value of contingent consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
|
Balance at beginning of year
|
|
$
|
8,420
|
|
|
$
|
—
|
|
|
|
Recognition of contingent consideration
|
|
—
|
|
|
10,097
|
|
|
|
Measurement period adjustment
|
|
—
|
|
|
1,958
|
|
|
|
Fair value adjustment (g)
|
|
(8,506)
|
|
|
(2,939)
|
|
|
|
Foreign currency translation
|
|
86
|
|
|
(696)
|
|
|
|
Balance at end of year
|
|
$
|
—
|
|
|
$
|
8,420
|
|
|
|
(g) The fair value adjustment resulted from the decreased probability of Altek achieving cumulative financial and non-financial performance goals within the required time frame. This amount is recorded in Other expenses, net on the Consolidated Statements of Operations.
Harsco Industrial Segment
In May 2019, the Company announced the intent to divest the businesses that comprised the Harsco Industrial Segment; AXC, IKG and PK. These disposals represent a strategic shift and accelerate the transformation of the Company's portfolio of businesses into a leading provider of environmental solutions and services. In July 2019, the Company sold AXC for $600 million in cash and recognized a gain on sale of $527.9 million pre-tax (or approximately $421 million after-tax). In November 2019, the Company sold PK for approximately $60 million in cash and recognized a gain on sale of $41.2 million pre-tax (or approximately $33 million after-tax). In January 2020, the Company sold IKG for $85.0 million, including a note receivable
with a face value of $40.0 million (initial fair value $34.3 million) and recognized an $18.4 million pre-tax gain on sale (or approximately $9 million after-tax). In 2019 the gains on the sales of AXC and PK and in 2020 the gain on the sale of PK have been recorded in the Consolidated Statements of Operations as discontinued operations.
The former Harsco Industrial Segment's balance sheet positions of IKG as of December 31, 2019 are presented as Assets held-for-sale and Liabilities of assets held-for-sale in the Company’s Consolidated Balance Sheets and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2019
|
|
|
Trade accounts receivable, net
|
|
$
|
10,982
|
|
|
|
Other receivables
|
|
78
|
|
|
|
Inventories
|
|
9,838
|
|
|
|
|
|
|
|
|
Other current assets
|
|
655
|
|
|
|
Property, plant and equipment, net
|
|
20,703
|
|
|
|
Right-of-use assets, net
|
|
11,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
96
|
|
|
|
Total assets
|
|
$
|
53,582
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,060
|
|
|
|
Accrued compensation
|
|
2,324
|
|
|
|
Current portion of advances on contracts
|
|
1,168
|
|
|
|
Current portion of operating lease liabilities
|
|
1,575
|
|
|
|
Other current liabilities
|
|
1,218
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
9,837
|
|
|
|
Other liabilities
|
|
2,314
|
|
|
|
Total liabilities
|
|
$
|
23,496
|
|
|
|
The Harsco Industrial Segment has historically been a separate reportable segment with primary operations in North America and Latin America. In accordance with U.S. GAAP, the results of the former Harsco Industrial Segment are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the years ended December 31, 2020, 2019, and 2018. Certain key selected financial information included in net income from discontinued operations for the former Harsco Industrial Segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Amounts directly attributable to the former Harsco Industrial Segment:
|
|
|
Total revenues
|
|
$
|
10,203
|
|
|
$
|
306,972
|
|
|
$
|
374,707
|
|
Cost of products sold
|
|
8,082
|
|
|
224,811
|
|
|
276,198
|
|
Gain on sale from discontinued businesses
|
|
18,281
|
|
|
569,135
|
|
|
—
|
|
Income (loss) from discontinued business
|
|
(1,578)
|
|
|
27,823
|
|
|
43,593
|
|
Additional amounts allocated to the former Harsco Industrial Segment:
|
|
|
Selling, general and administrative expenses (h)
|
|
$
|
2,695
|
|
|
$
|
8,429
|
|
|
$
|
—
|
|
Interest expense (i)
|
|
—
|
|
|
11,237
|
|
|
16,613
|
|
Loss on early extinguishment of debt (j)
|
|
—
|
|
|
5,314
|
|
|
—
|
|
(h) The Company has allocated directly attributable transaction costs to discontinued operations. In addition, this caption includes costs directly attributable to retained contingent liabilities of the Harsco Industrial Segment.
(i) The Company has allocated interest expense, including a portion of the amount reclassified into income for the Company's interest rate swaps, amortization of deferred financing costs, and $2.7 million related to interest rate swap terminations which occurred during the year ended December 31, 2019, all of which were directly attributed with the mandatory repayment of the Company's Term Loan Facility, resulting from the AXC disposal, as part of discontinued operations.
(j) The Company has allocated the $5.3 million write-off of deferred financing costs to discontinued operations as it is directly attributed to the mandatory repayment of the Term Loan Facility that resulted from the AXC disposal.
The Company has retained corporate overhead expenses previously allocated to the Harsco Industrial Segment of $4.0 million and $5.6 million in 2019, and 2018, respectively, as part of Selling, general and administrative expenses on the Consolidated Statements of Operations.
The following is selected financial information included on the Consolidated Statements of Cash Flows attributable to the former Harsco Industrial Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
(In millions)
|
|
2020
|
|
2019
|
|
2018
|
Non-cash operating items
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
—
|
|
|
$
|
3,301
|
|
|
$
|
7,729
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
106
|
|
|
8,372
|
|
|
7,561
|
|
4. Accounts Receivable and Note Receivable
Accounts receivable are stated at net realizable value which represents the face value of the receivable less an allowance for expected credit losses. The allowance for expected credit losses is maintained for expected lifetime losses resulting from the inability or unwillingness of customers to make required payments.
The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company generally assesses future economic conditions for a period which corresponds with the contractual life of its accounts receivable. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.
Prior to the adoption of the expected credit loss allowance methodology on January 1, 2020, the Company established an allowance for doubtful accounts based upon a specific-identification method as well as historical collection experience, as appropriate.
Accounts receivable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2020
|
|
December 31
2019
|
Trade accounts receivable
|
|
$
|
414,891
|
|
|
$
|
323,502
|
|
Less: Allowance for expected credit losses and doubtful accounts (a)(b)
|
|
(7,501)
|
|
|
(13,512)
|
|
Trade accounts receivable, net
|
|
$
|
407,390
|
|
|
$
|
309,990
|
|
|
|
|
|
|
Other receivables (c)
|
|
$
|
34,253
|
|
|
$
|
21,265
|
|
(a)The decrease in the allowance for expected credit losses and doubtful accounts reflects the final disposition of previously fully-reserved balances in the Harsco Environmental Segment.
(b)Upon the acquisition of ESOL, trade accounts receivable totaling $136.2 million were recorded at a fair value of $122.9 million as of the acquisition date, due primarily to expected credit losses as of the acquisition date of $13.0 million which were netted against the gross receivable balance as of the acquisition date.
(c)Other receivables include employee receivables, insurance receivable, tax claims and refunds and other miscellaneous receivables not included in Trade accounts receivable, net.
The provision for doubtful accounts related to trade accounts receivable was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
Provision for expected credit losses and doubtful accounts related to trade accounts receivable
|
|
$
|
1,960
|
|
|
$
|
7,507
|
|
|
$
|
380
|
|
The increase in the provision for doubtful accounts in 2019 primarily resulted from a provision for doubtful accounts in the Harsco Environmental Segment related to a customer in the U.K. entering administration, which was subsequently written off in 2020. The Company continues to provide services to the customer and continues to collect on post-administration invoices timely.
At December 31, 2020 approximately $5.7 million of the Company's trade accounts receivable were past due by twelve months or more. Approximately $2.5 million of this amount is reserved, and collection of the remaining balance is still ultimately expected.
In January 2020 the Company sold IKG for $85.0 million including cash and a note receivable, subject to post-closing adjustments. The note receivable from the buyer has a face value of $40.0 million, bearing interest at 2.50%, that is paid in kind and matures on January 31, 2027. Any unpaid principal, along with any accrued but unpaid interest is payable at maturity. Prepayment is required in case of a change in control or a percentage of excess cash flow, as defined in the note receivable agreement. Because there are no scheduled payments under the terms of the note receivable, the balance is not classified as current as of December 31, 2020 and is included in the caption Other assets on the Consolidated Balance Sheet. The initial fair value of the note receivable was $34.3 million which was calculated using an average of various discounted cash flow scenarios based on anticipated timing of repayments (Level 3) and was a non-cash transaction. The note receivable is subsequently measured at amortized cost. Key inputs into the valuation model include: projected timing and amount of cash flows, pro forma debt rating, option-adjusted spread and U.S. Treasury spot rate. At December 31, 2020 the amortized cost of the note receivable was $35.8 million, compared with a fair value of $36.9 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2020
|
|
December 31
2019
|
Note receivable
|
|
$
|
35,806
|
|
|
$
|
—
|
|
5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2020
|
|
December 31
2019
|
Finished goods
|
|
$
|
8,505
|
|
|
$
|
14,550
|
|
Work-in-process
|
|
16,522
|
|
|
13,088
|
|
Raw materials and purchased parts
|
|
117,789
|
|
|
104,488
|
|
Stores and supplies
|
|
30,197
|
|
|
24,865
|
|
Total inventories
|
|
$
|
173,013
|
|
|
$
|
156,991
|
|
Valued at lower of cost or market:
|
|
|
|
|
LIFO basis
|
|
$
|
107,162
|
|
|
$
|
101,465
|
|
FIFO basis
|
|
17,655
|
|
|
7,473
|
|
Average cost basis
|
|
48,196
|
|
|
48,053
|
|
Total inventories
|
|
$
|
173,013
|
|
|
$
|
156,991
|
|
Inventories valued on the LIFO basis at both December 31, 2020 and 2019 were approximately $23 million less than the amounts of such inventories valued at current costs. During 2018 as a result of reducing certain inventory quantities valued on a LIFO basis, net income (loss) was favorably impacted compared to that which would have been recorded under the FIFO basis of valuation by $0.6 million. There was no impact during 2020 and 2019.
6. Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Estimated
Useful Lives
|
|
December 31
2020
|
|
December 31
2019
|
Land
|
|
—
|
|
$
|
75,559
|
|
|
$
|
30,409
|
|
Land improvements
|
|
5-20 years
|
|
20,166
|
|
|
19,155
|
|
Buildings and improvements (a)
|
|
5-40 years
|
|
249,954
|
|
|
182,795
|
|
Machinery and equipment
|
|
3-20 years
|
|
1,597,592
|
|
|
1,518,652
|
|
Uncompleted construction
|
|
—
|
|
42,185
|
|
|
55,592
|
|
Gross property, plant and equipment
|
|
|
|
1,985,456
|
|
|
1,806,603
|
|
Less: Accumulated depreciation
|
|
|
|
(1,317,247)
|
|
|
(1,244,817)
|
|
Property, plant and equipment, net
|
|
|
|
$
|
668,209
|
|
|
$
|
561,786
|
|
(a) Buildings and improvements include leasehold improvements that are amortized over the shorter of their useful lives or the initial term of the lease.
7. Goodwill and Other Intangible Assets
Goodwill by Segment
The following table reflects the changes in carrying amounts of goodwill by segment for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Harsco Environmental
Segment
|
|
Harsco
Clean Earth
Segment
|
|
Harsco
Rail
Segment
|
|
Consolidated
Totals
|
Balance at December 31, 2018
|
|
$
|
391,687
|
|
|
$
|
—
|
|
|
$
|
13,026
|
|
|
$
|
404,713
|
|
Changes to goodwill (a)
|
|
—
|
|
|
330,230
|
|
|
—
|
|
|
330,230
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
3,426
|
|
|
—
|
|
|
—
|
|
|
3,426
|
|
Balance at December 31, 2019
|
|
395,113
|
|
|
330,230
|
|
|
13,026
|
|
|
738,369
|
|
Changes to goodwill (b)
|
|
1,480
|
|
|
152,417
|
|
|
—
|
|
|
153,897
|
|
Foreign currency translation
|
|
9,808
|
|
|
—
|
|
|
—
|
|
|
9,808
|
|
Balance at December 31, 2020
|
|
$
|
406,401
|
|
|
$
|
482,647
|
|
|
$
|
13,026
|
|
|
$
|
902,074
|
|
(a) The changes to goodwill related to the acquisition of Clean Earth. See Note 3, Acquisitions and Dispositions.
(b) The changes to goodwill related to the acquisition of ESOL, and immaterial acquisitions in the Harsco Environmental segment. See Note 3, Acquisitions and Dispositions.
The Company's methodology for determining reporting unit fair value is described in Note 1, Summary of Significant Accounting Policies. Performance of the Company's 2020 annual impairment test did not result in impairment of any of the Company's reporting units.
Intangible Assets
Intangible assets totaled $438.6 million, net of accumulated amortization of $84.5 million at December 31, 2020 and
$299.1 million, net of accumulated amortization of $113.6 million at December 31, 2019. The following table reflects these intangible assets by major category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(In thousands)
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Customer related
|
|
$
|
109,378
|
|
|
$
|
48,057
|
|
|
$
|
143,996
|
|
|
$
|
99,327
|
|
Permits
|
|
308,705
|
|
|
18,955
|
|
|
170,322
|
|
|
4,694
|
|
Technology related
|
|
40,274
|
|
|
9,654
|
|
|
36,467
|
|
|
5,635
|
|
Trade names
|
|
31,949
|
|
|
4,834
|
|
|
31,719
|
|
|
2,182
|
|
Air rights
|
|
26,139
|
|
|
1,044
|
|
|
26,139
|
|
|
411
|
|
Patents
|
|
192
|
|
|
139
|
|
|
249
|
|
|
168
|
|
Non-compete agreement
|
|
2,500
|
|
|
469
|
|
|
—
|
|
|
—
|
|
Other
|
|
3,911
|
|
|
1,331
|
|
|
3,765
|
|
|
1,158
|
|
Total
|
|
$
|
523,048
|
|
|
$
|
84,483
|
|
|
$
|
412,657
|
|
|
$
|
113,575
|
|
Amortization expense for intangible assets was $31.0 million, $15.5 million and $5.9 million for 2020, 2019 and 2018, respectively. The following table shows the estimated amortization expense for the next five fiscal years based on current intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
Estimated amortization expense (c)
|
|
$
|
32,900
|
|
|
$
|
32,400
|
|
|
$
|
32,300
|
|
|
$
|
31,800
|
|
|
$
|
31,600
|
|
(c) These estimated amortization expense amounts do not reflect the potential effect of future foreign currency exchange rate fluctuations.
8. Debt and Credit Agreements
The Company's long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2020
|
|
December 31
2019
|
Senior Secured Credit Facilities (a):
|
|
|
|
|
Original Term Loan with an interest rate of 3.25% and 4.1% at December 31, 2020 and 2019, respectively
|
|
$
|
218,188
|
|
|
$
|
218,188
|
|
New Term Loan with an interest rate of 3.5% at December 31, 2020
|
|
280,000
|
|
|
—
|
|
Revolving Credit Facility with an average interest rate of 2.8% and 5.0% at December 31, 2020 and 2019, respectively
|
|
281,000
|
|
|
67,000
|
|
5.75% notes due July 31, 2027
|
|
500,000
|
|
|
500,000
|
|
Other financing payable (including capital leases) in varying amounts due principally through 2021 with a weighted-average interest rate of 5.0% and 3.9% at December 31, 2020 and 2019, respectively
|
|
21,344
|
|
|
9,827
|
|
Total debt obligations
|
|
1,300,532
|
|
|
795,015
|
|
Less: deferred financing costs
|
|
(15,767)
|
|
|
(16,851)
|
|
Total debt obligations, net of deferred financing costs
|
|
1,284,765
|
|
|
778,164
|
|
Less: current maturities of long-term debt
|
|
(13,576)
|
|
|
(2,666)
|
|
Long-term debt
|
|
$
|
1,271,189
|
|
|
$
|
775,498
|
|
(a) The current portion of long-term debt related to the Senior Secured Credit Facilities was $10.5 million with the remainder reflected as Long-term debt at December 31, 2020. All amounts related to the Senior Secured Credit Facilities were reflected as Long-term debt at December 31, 2019.
The maturities of long-term debt for the four years following December 31, 2021 are as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
2022
|
|
$
|
27,513
|
|
2023
|
|
38,215
|
|
2024
|
|
718,138
|
|
2025
|
|
539
|
|
Cash payments for interest on debt were $59.5 million, $27.6 million and $34.2 million in 2020, 2019 and 2018, respectively.
Senior Secured Credit Facilities
In June 2018, the Company amended its Credit Agreement to, among other things, reduce the interest rate applicable to the Original Term Loan and to increase the limit of the Revolving Credit Facility. A charge of $1.1 million was recorded during 2018, in the caption Unused debt commitment and amendment fees on the Consolidated Statements of Operations, consisting principally of fees associated with the transaction and the write-off of unamortized deferred financing costs.
In June 2019, the Company amended the Credit Agreement to, among other things, increase the borrowing capacity of the Revolving Credit Facility by $200 million to a total of $700 million and extend the maturity date of the Revolving Credit Facility until June 2024. Total expenses of $1.0 million were recognized in 2019 related to the amended Credit Agreement in the caption Unused debt commitment and amendment fees on the Consolidated Statements of Operations. The Company capitalized $2.6 million of fees related to this amendment of the Revolving Credit Facility.
In March 2020 the Company raised $280 million pursuant to the New Term Loan as a new tranche under the existing Senior Secured Credit Facilities. The New Term Loan was fully drawn on April 6, 2020 to partially fund the acquisition of ESOL. See Note 3, Acquisition and Dispositions, for additional information related to the ESOL acquisition. The Company capitalized $1.9 million of fees related to the issuance of the New Term Loan.
In both March 2020 and June 2020, the Company amended the Senior Secured Credit Facilities to increase the net debt to consolidated adjusted EBITDA ratio covenant as defined in the Credit Agreement. As a result of these amendments, the net debt to consolidated adjusted EBITDA ratio covenant has been increased to 5.75 through March 2021 and then decreases
quarterly until reaching 4.75 in December 2021 and 4.00 in March 2022. There is no change to the previously agreed interest rates as long as the Company's total leverage ratio, as defined in the Credit Agreement, does not equal or exceed 4.50, at which time it would increase by 25 basis points for the New Term Loan and the Revolving Credit Facility. At December 31, 2020, the Company was in compliance with these and all other covenants. During 2020, the Company recognized $1.9 million of fees and expenses related to the amended Senior Secured Credit Facilities in the caption Unused debt commitment and amendment fees on the Consolidated Statements of Operations.
The Credit Agreement imposes certain restrictions including, but not limited to, restrictions as to types and amounts of debt of liens that may be incurred by the Company; limitations on increases in dividend payments; limitations on repurchases of the Company's stock and limitations on certain acquisitions by the Company.
With respect to the Senior Secured Credit Facilities, the obligations of the Company are guaranteed by substantially all of the Company’s current and future wholly-owned domestic subsidiaries (“Guarantors”). All obligations under the Senior Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Guarantors.
Original Term Loan
Borrowings under the Original Term Loan bear interest at a rate per annum of 225 basis points over the adjusted LIBOR rate, subject to a 1% floor, as defined in the Credit Agreement. The Original Term Loan matures on December 8, 2024.
New Term Loan
Borrowings under the New Term Loan bear interest at a rate per annum ranging from 150 to 250 basis points over adjusted LIBOR (as defined in the Credit Agreement), subject to a 1% floor. The New Term Loan matures on June 28, 2024.
The Credit Agreement requires certain mandatory prepayments of the Original Term Loan and the New Term Loan, subject to certain exceptions, based on net cash proceeds of certain sales or distributions of assets, as well as certain casualty and condemnation events, in some cases subject to reinvestment rights and certain other exceptions; net cash proceeds of any issuance of debt, excluded permitted debt issuances; and a percentage of excess cash flow, as defined by the Credit Agreement, during a fiscal year.
In July 2019, the Company made a prepayment of $320.9 million on the Original Term Loan, using proceeds from the sale of AXC. The remainder of the proceeds from the sale were used to pay down the Revolving Credit Facility. As a result of this prepayment, the Company expensed $5.3 million of previously recorded deferred financing costs on the Consolidated Statement of Operations as discontinued operations in 2019. The prepayment satisfied all future quarterly principal payment requirements under the Original Term Loan; the remaining principal is due at maturity.
Revolving Credit Facility
Borrowings under the Revolving Credit Facility, a U.S.-based program, bear interest at a rate per annum ranging from 50 to 150 basis points over the base rate or 150 to 250 basis points over adjusted LIBOR as defined in the Credit Agreement, subject to a 0% floor. Any principal amount outstanding under the Revolving Credit Facility is due and payable on its maturity on June 28, 2024.
The following table shows the amount outstanding under the Revolving Credit Facility and available credit at December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(In thousands)
|
|
Facility
Limit
|
|
Outstanding
Balance
|
|
Outstanding Letters of Credit
|
|
Available
Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
$
|
700,000
|
|
|
$
|
281,000
|
|
|
$
|
25,352
|
|
|
$
|
393,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.75% Notes due July 31, 2027
During June 2019, the Company completed a private placement of $500.0 million principal amount of Notes. The Notes bear interest at a fixed rate of 5.75%, which is payable on January 31 and July 31 of each year, beginning on January 31, 2020. The Notes are fully and unconditionally guaranteed, jointly and severally, by all of the wholly owned domestic subsidiaries of the Company that guarantee the Senior Secured Credit Facilities. The indenture governing the Notes contains provisions that (i) allow the Company to redeem some or all of the Notes prior to maturity; (ii) require the Company to offer to repurchase all of the Notes upon a change in control; and (iii) require adherence to certain covenants which are generally less restrictive than those included in the Company's Credit Agreement. The Notes were used, together with borrowings under the Company's
Revolving Credit Facility, to fund the acquisition of Clean Earth in 2019. See Note 3, Acquisitions and Dispositions, for additional information. The Company capitalized $9.0 million of fees related to the issuance of the Notes.
Other
In 2019, the Company recognized $6.7 million of expenses for fees and other costs related to bridge financing commitments that the Company arranged in the event that the Notes were not issued prior to the acquisition of Clean Earth. Because the Notes were issued prior to completion of the Clean Earth acquisition, the bridge financing commitments were not utilized.
Short-term borrowings totaled to $7.5 million and $3.6 million at December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, Short-term borrowings consist primarily of bank overdrafts and other third-party debt. The weighted-average interest rate for short-term borrowings at December 31, 2020 and 2019 was 3.4% and 5.6%, respectively.
9. Leases
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
Finance leases:
|
|
|
|
|
Amortization expense
|
|
$
|
1,523
|
|
|
$
|
1,234
|
|
Interest on lease liabilities
|
|
184
|
|
|
50
|
|
Operating leases
|
|
30,461
|
|
|
16,083
|
|
|
|
|
|
|
Variable and short-term leases
|
|
42,772
|
|
|
23,470
|
|
Sublease income
|
|
(202)
|
|
|
(198)
|
|
Total lease expense from continuing operations
|
|
$
|
74,738
|
|
|
$
|
40,639
|
|
Total lease expense for the year ended December 31, 2018, under then in effect lease accounting in accordance with U.S. GAAP, was $12.6 million.
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Cash flows from operating activities - Operating leases
|
|
$
|
28,057
|
|
|
$
|
15,143
|
|
Cash flows from financing activities - Finance leases
|
|
1,367
|
|
|
1,317
|
|
ROU assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases (a)
|
|
$
|
69,044
|
|
|
$
|
65,525
|
|
Finance leases
|
|
6,220
|
|
|
2,658
|
|
(a) Cash flows include ROU assets of approximately $56 million that were recorded upon the acquisition of ESOL in 2020, approximately $34 million that were recorded upon adoption at January 1, 2019 and approximately $26 million that were recorded upon the acquisition of Clean Earth in 2019. See Note 3, Acquisitions and Dispositions, for additional information.
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
|
Operating Leases:
|
|
|
|
|
|
|
Operating lease ROU assets
|
|
$
|
96,849
|
|
|
$
|
52,065
|
|
|
|
Current portion of operating lease liabilities
|
|
24,862
|
|
|
12,544
|
|
|
|
Operating lease liabilities
|
|
69,860
|
|
|
36,974
|
|
|
|
|
|
|
|
|
|
|
Finance Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
8,434
|
|
|
$
|
3,519
|
|
|
|
Current maturities of long-term debt
|
|
1,683
|
|
|
1,237
|
|
|
|
Long-term debt
|
|
6,867
|
|
|
2,218
|
|
|
|
|
|
|
|
|
|
|
Supplemental additional information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Other information:
|
|
|
|
|
Weighted average remaining lease term - Operating leases (in years)
|
|
8.00
|
|
11.57
|
Weighted average remaining lease term - Finance leases (in years)
|
|
8.20
|
|
4.01
|
Weighted average discount rate - Operating leases
|
|
6.1
|
%
|
|
6.3
|
%
|
Weighted average discount rate - Finance leases
|
|
5.1
|
%
|
|
4.2
|
%
|
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousand)
|
|
Operating Leases
|
|
Finance
Leases
|
Year Ending December 31:
|
|
|
|
|
2021
|
|
$
|
30,611
|
|
|
$
|
1,972
|
|
2022
|
|
23,766
|
|
|
1,708
|
|
2023
|
|
18,791
|
|
|
1,492
|
|
2024
|
|
13,003
|
|
|
1,321
|
|
2025
|
|
7,994
|
|
|
708
|
|
After 2025
|
|
38,388
|
|
|
3,420
|
|
Total lease payments
|
|
132,553
|
|
|
10,621
|
|
Less: Imputed interest
|
|
(37,831)
|
|
|
(2,071)
|
|
Total
|
|
$
|
94,722
|
|
|
$
|
8,550
|
|
The Company's leases, excluding short-term leases, have remaining terms of less than one year to 30 years, some of which include options to extend for up to 10 years, and some of which include options to terminate within one year. As of December 31, 2020, the Company has additional operating leases for property and equipment that have not yet commenced with estimated ROU assets and lease liabilities of approximately $7 million to be recognized upon anticipated lease commencements in the first and second quarters of 2021. There are no material residual value guarantees or material restrictive covenants in any of the Company's leases.
10. Employee Benefit Plans
Pension Benefits
The Company has defined benefit pension plans covering a certain number of employees. The defined benefits for salaried employees generally are based on years of service and the employee's level of compensation during specified periods of employment. Defined benefit pension plans covering hourly employees generally provide benefits of stated amounts for each year of service. MEPPs in which the Company participates provide benefits to certain unionized employees. The Company's funding policy for qualified plans is consistent with statutory regulations and customarily equals the amount deducted for income tax purposes. Periodic voluntary contributions are made, as recommended, by the Company's Pension Committee.
For most U.S. defined benefit pension plans and a majority of international defined benefit pension plans, accrued service is no longer granted. In place of these plans, the Company has established defined contribution plans providing for the Company to contribute a specified matching amount for participating employees' contributions to the plan. For U.S. employees, this match is made on employee contributions up to 4% of eligible compensation. Additionally, the Company may provide a discretionary contribution for eligible employees. There have been no discretionary contributions provided for the years 2020, 2019 and 2018. For non-U.S. employees, this match is up to 6% of eligible compensation with an additional 2% going towards insurance and administrative costs.
NPPC for U.S. and international plans for 2020, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Net Periodic Pension Cost:
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
42
|
|
|
$
|
1,838
|
|
|
$
|
1,447
|
|
|
$
|
1,669
|
|
Interest cost
|
|
7,381
|
|
|
10,551
|
|
|
9,562
|
|
|
17,720
|
|
|
22,280
|
|
|
21,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Expected return on plan assets
|
|
(11,368)
|
|
|
(10,297)
|
|
|
(12,068)
|
|
|
(41,252)
|
|
|
(37,430)
|
|
|
(42,685)
|
|
Recognized prior service costs
|
|
—
|
|
|
—
|
|
|
1
|
|
|
511
|
|
|
326
|
|
|
(140)
|
|
Recognized losses
|
|
5,100
|
|
|
5,585
|
|
|
5,207
|
|
|
14,723
|
|
|
14,345
|
|
|
14,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement/curtailment loss (gain)
|
|
—
|
|
|
129
|
|
|
285
|
|
|
(92)
|
|
|
19
|
|
|
(36)
|
|
Defined benefit pension plan cost (income)
|
|
1,113
|
|
|
6,007
|
|
|
3,029
|
|
|
(6,552)
|
|
|
987
|
|
|
(4,796)
|
|
Multiemployer pension plans
|
|
620
|
|
|
727
|
|
|
686
|
|
|
969
|
|
|
1,167
|
|
|
1,313
|
|
Defined contribution plans
|
|
5,025
|
|
|
4,178
|
|
|
3,466
|
|
|
4,708
|
|
|
6,031
|
|
|
5,608
|
|
Net periodic pension cost (income)
|
|
$
|
6,758
|
|
|
$
|
10,912
|
|
|
$
|
7,181
|
|
|
$
|
(875)
|
|
|
$
|
8,185
|
|
|
$
|
2,125
|
|
The change in the financial status of the defined benefit pension plans and amounts recognized on the Consolidated Balance Sheets at December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
(In thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
294,693
|
|
|
$
|
286,027
|
|
|
$
|
988,288
|
|
|
$
|
874,679
|
|
Service cost
|
|
—
|
|
|
39
|
|
|
1,838
|
|
|
1,447
|
|
Interest cost
|
|
7,381
|
|
|
10,551
|
|
|
17,720
|
|
|
22,280
|
|
Plan participants' contributions
|
|
—
|
|
|
—
|
|
|
35
|
|
|
36
|
|
Amendments
|
|
—
|
|
|
—
|
|
|
1,088
|
|
|
1,254
|
|
Actuarial (gain) loss
|
|
25,212
|
|
|
20,064
|
|
|
129,495
|
|
|
93,330
|
|
Settlements/curtailments
|
|
—
|
|
|
—
|
|
|
(256)
|
|
|
(343)
|
|
Benefits paid
|
|
(17,675)
|
|
|
(15,842)
|
|
|
(45,293)
|
|
|
(37,396)
|
|
Effect of foreign currency
|
|
—
|
|
|
—
|
|
|
29,526
|
|
|
33,010
|
|
Acquisitions/divestitures
|
|
(12,951)
|
|
|
(6,146)
|
|
|
(41)
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
296,660
|
|
|
$
|
294,693
|
|
|
$
|
1,122,400
|
|
|
$
|
988,288
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
226,268
|
|
|
$
|
205,388
|
|
|
$
|
864,636
|
|
|
$
|
744,538
|
|
Actual return on plan assets
|
|
24,975
|
|
|
37,665
|
|
|
95,219
|
|
|
108,235
|
|
Employer contributions
|
|
3,528
|
|
|
8,306
|
|
|
21,962
|
|
|
21,121
|
|
Plan participants' contributions
|
|
—
|
|
|
—
|
|
|
35
|
|
|
36
|
|
Settlements/curtailments
|
|
—
|
|
|
—
|
|
|
(256)
|
|
|
(343)
|
|
Benefits paid
|
|
(17,675)
|
|
|
(15,842)
|
|
|
(44,869)
|
|
|
(37,217)
|
|
Effect of foreign currency
|
|
—
|
|
|
—
|
|
|
23,831
|
|
|
28,275
|
|
Acquisitions/divestitures
|
|
(10,971)
|
|
|
(9,249)
|
|
|
—
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
226,125
|
|
|
$
|
226,268
|
|
|
$
|
960,558
|
|
|
$
|
864,636
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(70,535)
|
|
|
$
|
(68,425)
|
|
|
$
|
(161,842)
|
|
|
$
|
(123,652)
|
|
Significant items impacting actuarial gains and losses for 2020 for U.S. plans included: the discount rate used to measure the benefit obligation decreased compared with the prior year, which caused the funded position to deteriorate; partially offset by the actual return on the fair value of plan assets since the prior measurement date was greater than assumed, which improved the funded position; and improvements in the mortality improvement projection assumption, which improved the funded position. The U.S. plans benefit obligation and the fair value of assets were also impacted by the divestiture of IKG in 2020, as these transferred to the buyer. See Note 3, Acquisitions and Dispositions, for additional information.
Significant items impacting actuarial gains and losses for 2020 for international plans, principally the U.K. plan, included: the discount rate used to measure the benefit obligation decreased compared with the prior year, which caused the funded position to deteriorate; partially offset by the actual return on the fair value of plan assets since the prior measurement date was greater than assumed, which improved the funded position.
Amounts recognized on the Consolidated Balance Sheets for defined benefit pension plans consist of the following at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
|
December 31
|
|
December 31
|
(In thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Noncurrent assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
533
|
|
|
$
|
987
|
|
Current liabilities
|
|
1,970
|
|
|
1,980
|
|
|
907
|
|
|
697
|
|
Noncurrent liabilities
|
|
68,565
|
|
|
64,465
|
|
|
161,468
|
|
|
123,942
|
|
Liabilities of assets held-for-sale
|
|
—
|
|
|
1,980
|
|
|
—
|
|
|
—
|
|
AOCI
|
|
135,281
|
|
|
133,806
|
|
|
487,697
|
|
|
415,781
|
|
Amounts recognized in AOCI for defined benefit pension plans consist of the following at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
(In thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net actuarial loss
|
|
$
|
135,281
|
|
|
$
|
133,806
|
|
|
$
|
477,253
|
|
|
$
|
408,709
|
|
Prior service cost
|
|
—
|
|
|
—
|
|
|
10,444
|
|
|
7,072
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
135,281
|
|
|
$
|
133,806
|
|
|
$
|
487,697
|
|
|
$
|
415,781
|
|
The Company's estimate of expected contributions to be paid in 2021 for the U.S. and international defined benefit plans total $4.4 million and $25.2 million, respectively.
Future Benefit Payments
Expected benefit payments for defined benefit pension plans over the next ten years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026-2030
|
U.S. Plans
|
|
$
|
25.6
|
|
|
$
|
17.1
|
|
|
$
|
17.0
|
|
|
$
|
16.8
|
|
|
$
|
16.7
|
|
|
$
|
80.6
|
|
International Plans
|
|
45.1
|
|
|
46.0
|
|
|
47.4
|
|
|
48.3
|
|
|
49.8
|
|
|
264.2
|
|
Net Periodic Pension Cost and Defined Benefit Pension Obligation Assumptions
The weighted-average actuarial assumptions used to determine the defined benefit pension plan NPPC for 2020, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
December 31
|
|
International Plans
December 31
|
|
Global Weighted-Average
December 31
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Discount rates
|
|
3.2
|
%
|
|
4.2
|
%
|
|
3.5
|
%
|
|
2.1
|
%
|
|
2.9
|
%
|
|
2.6
|
%
|
|
2.4
|
%
|
|
3.2
|
%
|
|
2.8
|
%
|
Expected long-term rates of return on plan assets
|
|
7.0
|
%
|
|
7.3
|
%
|
|
7.3
|
%
|
|
5.2
|
%
|
|
5.5
|
%
|
|
5.6
|
%
|
|
5.6
|
%
|
|
5.9
|
%
|
|
6.0
|
%
|
The expected long-term rates of return on defined benefit pension plan assets for the 2021 NPPC are 6.8% for the U.S. plans and 4.7% for the international plans. The expected global long-term rate of return on assets for 2021 is 5.1%.
The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at
December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
Global Weighted-Average
|
|
|
December 31
|
|
December 31
|
|
December 31
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Discount rates
|
|
2.4
|
%
|
|
3.2
|
%
|
|
1.4
|
%
|
|
2.1
|
%
|
|
1.6
|
%
|
|
2.4
|
%
|
Since accrued service is no longer granted to the U.S. defined benefit plans and the majority of the international defined benefit pension plans, the rate of compensation increase did not have a significant impact on the defined benefit pension obligation at December 31, 2020 and 2019 or the defined benefit pension plan NPPC for the years ended 2020, 2019 and 2018.
The U.S. discount rate was determined using a yield curve that was produced from a universe containing approximately 1,100 U.S. dollar-denominated, AA-graded corporate bonds, all of which were noncallable (or callable with make-whole provisions) and excluding the 10% of the bonds with the highest deviation from the expected yield and the 10% with the lowest deviation from the expected yield within each duration group. The discount rate was then developed as the level-equivalent rate that would produce the same present value as that using spot rates to discount the projected benefit payments. For international plans, the discount rate is aligned to corporate bond yields in the local markets, normally AA-rated corporations. The process and selection seek to approximate the cash inflows with the timing and amounts of the expected benefit payments.
Accumulated Benefit Obligation
The accumulated benefit obligation for all defined benefit pension plans at December 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
|
December 31
|
|
December 31
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Accumulated benefit obligation
|
|
$
|
296.7
|
|
|
$
|
294.7
|
|
|
$
|
1,116.1
|
|
|
$
|
982.7
|
|
Defined Benefit Pension Plans with Accumulated Benefit Obligation in Excess of Plan Assets
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for defined benefit pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
|
December 31
|
|
December 31
|
(In millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Projected benefit obligation
|
|
$
|
296.7
|
|
|
$
|
294.7
|
|
|
$
|
1,115.7
|
|
|
$
|
966.3
|
|
Accumulated benefit obligation
|
|
296.7
|
|
|
294.7
|
|
|
1,109.8
|
|
|
961.1
|
|
Fair value of plan assets
|
|
226.1
|
|
|
226.3
|
|
|
953.5
|
|
|
841.9
|
|
The asset allocations attributable to the Company's U.S. defined benefit pension plans at December 31, 2020 and 2019, and the long-term target allocation of plan assets, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Long-Term
Allocation
|
|
Percentage of Plan Assets
December 31
|
U.S. Plans Asset Category
|
|
|
2020
|
|
2019
|
Domestic equity securities
|
|
25%-35%
|
|
30.8
|
%
|
|
30.8
|
%
|
International equity securities
|
|
20%-30%
|
|
26.5
|
%
|
|
25.3
|
%
|
Fixed income securities
|
|
31%-41%
|
|
33.4
|
%
|
|
34.8
|
%
|
Cash and cash equivalents
|
|
Less than 5%
|
|
0.7
|
%
|
|
0.8
|
%
|
Other (a)
|
|
4%-14%
|
|
8.6
|
%
|
|
8.3
|
%
|
(a) Investments within this caption include diversified global asset allocation funds and credit collection funds.
Defined benefit pension plan assets are allocated among various categories of equities, fixed income securities and cash and cash equivalents with professional investment managers whose performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts an asset/liability modeling study and accordingly adjusts investments among and within asset categories to ensure the long-term investment strategy is aligned with the profile of benefit obligations.
The Company reviews the long-term expected return on asset assumption on a periodic basis considering a variety of factors including historical investment returns achieved over a long-term period, the targeted allocation of plan assets and future expectations based on a model of asset returns for an actively managed portfolio. The model simulates 1,000 different capital market results over 20 years. The expected return-on-asset assumption for U.S. defined benefit pension plans for 2021 and 2020 are 6.8% and 7.0%, respectively.
The U.S. defined benefit pension plans' assets include 330,000 shares at December 31, 2020 and 360,000 shares at December 31, 2019 of the Company's common stock, valued at $5.9 million and $8.3 million, respectively. These shares represented 2.6% and 3.7% of total U.S. plan assets at December 31, 2020 and 2019, respectively.
The asset allocations attributable to the Company's international defined benefit pension plans at December 31, 2020 and 2019 and the long-term target allocation of plan assets, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Plans Asset Category
|
|
Target Long-Term
Allocation
|
|
Percentage of Plan Assets
December 31
|
|
|
2020
|
|
2019
|
Equity securities
|
|
29.0
|
%
|
|
32.1
|
%
|
|
31.6
|
%
|
Fixed income securities
|
|
50.0
|
%
|
|
49.3
|
%
|
|
48.5
|
%
|
Cash and cash equivalents
|
|
—
|
|
|
0.2
|
%
|
|
0.3
|
%
|
Other (b)
|
|
21.0
|
%
|
|
18.4
|
%
|
|
19.6
|
%
|
(b) Investments within this caption include diversified growth funds and real estate funds.
International defined benefit pension plan assets at December 31, 2020 in the U.K. defined benefit pension plan totaled approximately 95% of the international defined benefit pension plan assets. The U.K. plan assets are allocated among various categories of equities, fixed income securities and cash and cash equivalents with professional investment managers whose
performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts asset/liability modeling studies and accordingly adjusts investment amounts within asset categories to ensure the long-term investment strategy is aligned with the profile of benefit obligations.
For the international long-term rate of return assumption, the Company considered the current level of expected returns in risk-free investments (primarily government bonds), the historical level of the risk premium associated with other asset classes in which the portfolio is invested, and the expectations for future returns of each asset class and plan expenses. The expected return for each asset class is then weighted based on the target asset allocation to develop the expected long-term rate of return on assets. The expected return on asset assumption for the U.K. defined benefit pension plan for 2021 and 2020 are 4.7% and 5.2%, respectively. The remaining international defined benefit pension plans, with plan assets representing approximately 5% of the international defined benefit pension plan assets, are under the guidance of professional investment managers and have similar investment objectives.
The fair values of the Company's U.S. defined benefit pension plans' assets at December 31, 2020 by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
|
|
Investments Valued at Net Asset Value (c)
|
Domestic equities:
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
5,934
|
|
|
$
|
5,934
|
|
|
|
|
$
|
—
|
|
Mutual funds—equities
|
|
63,651
|
|
|
63,651
|
|
|
|
|
—
|
|
International equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds—equities
|
|
59,933
|
|
|
59,933
|
|
|
|
|
—
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds—bonds
|
|
75,441
|
|
|
75,441
|
|
|
|
|
—
|
|
Other—mutual funds
|
|
8,944
|
|
|
8,944
|
|
|
|
|
—
|
|
Cash and money market accounts
|
|
1,691
|
|
|
1,691
|
|
|
|
|
—
|
|
Other—partnerships/joint ventures
|
|
10,531
|
|
|
—
|
|
|
|
|
10,531
|
|
Total
|
|
$
|
226,125
|
|
|
$
|
215,594
|
|
|
|
|
$
|
10,531
|
|
(c) Certain investments that are measured at fair value using Net Asset Value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy.
The fair values of the Company's U.S. defined benefit pension plans' assets at December 31, 2019 by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
|
|
Investments Valued at Net Asset Value
|
Domestic equities:
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
8,285
|
|
|
$
|
8,285
|
|
|
|
|
$
|
—
|
|
Mutual funds—equities
|
|
61,346
|
|
|
61,346
|
|
|
|
|
—
|
|
International equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds—equities
|
|
57,188
|
|
|
57,188
|
|
|
|
|
—
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds—bonds
|
|
78,685
|
|
|
78,685
|
|
|
|
|
—
|
|
Other—mutual funds
|
|
8,764
|
|
|
8,764
|
|
|
|
|
—
|
|
Cash and money market accounts
|
|
1,816
|
|
|
1,816
|
|
|
|
|
—
|
|
Other - partnerships/joint ventures
|
|
10,184
|
|
|
—
|
|
|
|
|
10,184
|
|
Total
|
|
$
|
226,268
|
|
|
$
|
216,084
|
|
|
|
|
$
|
10,184
|
|
The fair values of the Company's international defined benefit pension plans' assets at December 31, 2020 by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
Mutual funds—equities
|
|
$
|
308,002
|
|
|
$
|
—
|
|
|
$
|
308,002
|
|
|
|
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
Mutual funds—bonds
|
|
467,864
|
|
|
—
|
|
|
467,864
|
|
|
|
|
|
Insurance contracts
|
|
6,282
|
|
|
—
|
|
|
6,282
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other mutual funds
|
|
176,679
|
|
|
—
|
|
|
176,679
|
|
|
|
|
|
Cash and money market accounts
|
|
1,731
|
|
|
1,731
|
|
|
—
|
|
|
|
|
|
Total
|
|
$
|
960,558
|
|
|
$
|
1,731
|
|
|
$
|
958,827
|
|
|
|
|
|
The fair values of the Company's international defined benefit pension plans' assets at December 31, 2019 by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
Mutual funds—equities
|
|
$
|
273,568
|
|
|
$
|
—
|
|
|
$
|
273,568
|
|
|
|
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds—bonds
|
|
413,249
|
|
|
—
|
|
|
413,249
|
|
|
|
|
|
Insurance contracts
|
|
5,705
|
|
|
|
|
5,705
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other mutual funds
|
|
169,886
|
|
|
—
|
|
|
169,886
|
|
|
|
|
|
Cash and money market accounts
|
|
2,228
|
|
|
2,228
|
|
|
—
|
|
|
|
|
|
Total
|
|
$
|
864,636
|
|
|
$
|
2,228
|
|
|
$
|
862,408
|
|
|
|
|
|
Following is a description of the valuation methodologies used for the defined benefit pension plans' investments measured at fair value:
•Level 1 Fair Value Measurements—Investments in interest-bearing cash are stated at cost, which approximates fair value. The fair values of money market accounts and certain mutual funds are based on quoted net asset values of the shares held by the plan at year-end. The fair values of domestic and international stocks and corporate bonds, notes and convertible debentures are valued at the closing price reported in the active market on which the individual securities are traded.
•Level 2 Fair Value Measurements—The fair values of investments in mutual funds for which quoted net asset values in an active market are not available are valued by the investment advisor based on the current market values of the underlying assets of the mutual fund based on information reported by the investment consistent with audited financial statements of the mutual fund. Further information concerning these mutual funds may be obtained from their separate audited financial statements. Investments in U.S. Treasury notes and collateralized securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings.
Multiemployer Pension Plans
The Company, through the Harsco Environmental Segment, contributes to several MEPPs under the terms of collective-bargaining agreements that cover union-represented employees, many of whom are temporary in nature. The Company's total contributions to MEPPs were $1.6 million, $1.9 million and $2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.
11. Income Taxes
Current income tax expense or benefit represents the amounts expected to be reported on the Company's income tax returns, and deferred income tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted income tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered more likely than not to be realized.
On December 22, 2017, the Tax Act was signed into law. The Tax Act significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a 21% rate, effective January 1, 2018.
Included in the Tax Act were the global intangible low-taxed income ("GILTI") provisions. The Company elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets.
Income (loss) from continuing operations before income taxes and equity income as reported on the Consolidated Statements of Operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
U.S.
|
|
$
|
(67,276)
|
|
|
$
|
(13,934)
|
|
|
$
|
28,281
|
|
International
|
|
36,151
|
|
|
70,405
|
|
|
85,368
|
|
Total income (loss) from continuing operations before income taxes and equity income
|
|
$
|
(31,125)
|
|
|
$
|
56,471
|
|
|
$
|
113,649
|
|
Income tax expense (benefit) as reported on the Consolidated Statements of Operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
Income tax expense (benefit):
|
|
|
|
|
|
|
Currently payable:
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
(12,116)
|
|
|
$
|
903
|
|
|
$
|
(7)
|
|
U.S. state
|
|
575
|
|
|
233
|
|
|
177
|
|
International
|
|
19,216
|
|
|
23,775
|
|
|
17,127
|
|
Total income taxes currently payable
|
|
7,675
|
|
|
24,911
|
|
|
17,297
|
|
Deferred U.S. federal
|
|
(7,452)
|
|
|
(5,924)
|
|
|
1,854
|
|
Deferred U.S. state
|
|
(2,646)
|
|
|
(1,303)
|
|
|
(10,911)
|
|
Deferred international
|
|
(356)
|
|
|
2,530
|
|
|
(2,741)
|
|
Total income tax expense (benefit) from continuing operations
|
|
$
|
(2,779)
|
|
|
$
|
20,214
|
|
|
$
|
5,499
|
|
Cash payments for income taxes were $34.9 million, $115.6 million and $26.8 million for 2020, 2019 and 2018, respectively. The decrease in cash payments for 2020 is principally due to payments associated with the gain on the sale of AXC in 2019 not recurring in 2020.
A reconciliation of the normal expected statutory U.S. federal income tax expense (benefit) to the actual Income tax expense (benefit) from continuing operations as reported on the Consolidated Statements of Operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
U.S. federal income tax expense (benefit)
|
|
$
|
(6,536)
|
|
|
$
|
11,859
|
|
|
$
|
23,866
|
|
U.S. state income taxes, net of federal income tax benefit
|
|
(1,589)
|
|
|
(274)
|
|
|
566
|
|
U.S. other domestic deductions and credits
|
|
(3,435)
|
|
|
(1,322)
|
|
|
(2,407)
|
|
Difference in effective tax rates on international earnings and remittances
|
|
9,450
|
|
|
9,550
|
|
|
5,394
|
|
Uncertain tax position contingencies and settlements
|
|
289
|
|
|
310
|
|
|
(1,180)
|
|
Changes in realization on beginning of the year deferred tax assets
|
|
(370)
|
|
|
2,343
|
|
|
(6,937)
|
|
U.S. non-deductible expenses
|
|
2,363
|
|
|
2,554
|
|
|
1,128
|
|
Impact of U.S. tax reform
|
|
—
|
|
|
1,643
|
|
|
(11,686)
|
|
Net operating loss carryback
|
|
(2,696)
|
|
|
—
|
|
|
—
|
|
State deferred tax rate change
|
|
(41)
|
|
|
(3,353)
|
|
|
—
|
|
Foreign derived intangible income deduction
|
|
—
|
|
|
—
|
|
|
(2,366)
|
|
Employee share-based payments
|
|
(214)
|
|
|
(3,064)
|
|
|
(736)
|
|
Other, net
|
|
—
|
|
|
(32)
|
|
|
(143)
|
|
Total income tax expense (benefit) from continuing operations
|
|
$
|
(2,779)
|
|
|
$
|
20,214
|
|
|
$
|
5,499
|
|
At December 31, 2020, 2019 and 2018, the Company's annual effective income tax rate on income (loss) from continuing operations was 8.9%, 35.8% and 4.8%, respectively.
The Company’s international income from continuing operations before income taxes and equity income was $36.2 million and $70.4 million for 2020 and 2019, respectively. The Company's total international income tax expense decreased from $26.3 million in 2019 to $18.9 million in 2020 primarily due to reduction in profit from the impact of COVID 19, the change in mix of income, and a valuation allowance increase on a deferred tax asset due to lower projected income in a certain jurisdiction in 2019 not recurring in 2020.
The Company’s differences in effective income tax rates for 2020 and 2019 on international earnings and remittances was $9.5 million and $9.6 million, respectively, which included U.S income tax expense on international deemed remittances of $0.1 million and $1.0 million respectively.
The Company's U.S. loss from continuing operations before income taxes and equity income was $67.3 million and $13.9 million for 2020 and 2019, respectively. The Company's total U.S. income tax benefit increased from $6.1 million in 2019 to $21.6 million in 2020 primarily due to increased expenses from corporate strategic spending and net operating loss carrybacks.
The income tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 (b)
|
|
2019 (b)
|
(In thousands)
|
|
Asset
|
|
Liability
|
|
Asset
|
|
Liability
|
Depreciation and amortization (a)
|
|
$
|
—
|
|
|
$
|
78,029
|
|
|
$
|
—
|
|
|
$
|
57,591
|
|
Right-of-use assets (a)
|
|
|
|
23,507
|
|
|
|
|
15,567
|
|
Operating lease liabilities (a)
|
|
22,968
|
|
|
|
|
14,929
|
|
|
|
Expense accruals
|
|
20,844
|
|
|
—
|
|
|
18,421
|
|
|
—
|
|
Inventories
|
|
2,884
|
|
|
—
|
|
|
4,568
|
|
|
—
|
|
Provision for receivables
|
|
4,903
|
|
|
—
|
|
|
1,109
|
|
|
—
|
|
Deferred revenue
|
|
—
|
|
|
4,425
|
|
|
—
|
|
|
3,222
|
|
Operating loss carryforwards
|
|
101,022
|
|
|
—
|
|
|
85,378
|
|
|
—
|
|
Foreign tax credit carryforwards
|
|
11,445
|
|
|
—
|
|
|
24,219
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
49,641
|
|
|
—
|
|
|
38,766
|
|
|
—
|
|
Currency adjustments
|
|
797
|
|
|
—
|
|
|
462
|
|
|
—
|
|
Deferred financing costs
|
|
—
|
|
|
269
|
|
|
—
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
Post-retirement benefits
|
|
340
|
|
|
—
|
|
|
411
|
|
|
—
|
|
Stock based compensation
|
|
6,696
|
|
|
—
|
|
|
6,572
|
|
|
—
|
|
Other
|
|
—
|
|
|
74
|
|
|
—
|
|
|
769
|
|
Subtotal
|
|
221,540
|
|
|
106,304
|
|
|
194,835
|
|
|
77,715
|
|
Valuation allowance
|
|
(140,615)
|
|
|
—
|
|
|
(127,074)
|
|
|
—
|
|
Total deferred income taxes
|
|
$
|
80,925
|
|
|
$
|
106,304
|
|
|
$
|
67,761
|
|
|
$
|
77,715
|
|
(a)The increase in 2020 is primarily related to the ESOL acquisition. See Note 3, Acquisitions and Dispositions, for additional information. The 2019 disclosure has been adjusted to reflect the gross deferred tax right-of-use asset and related gross deferred lease liability.
(b) Does not include approximately $1.2 billion of statutory loss carryforwards within Luxembourg for which the Company considers the utilization of these attributes remote and as such no deferred tax asset or corresponding valuation allowance has been recorded.
At December 31, 2020, the tax-effected amount of NOLs totaled $101.0 million. Tax-effected NOLs from international operations are $75.8 million. Of that amount, $65.3 million can be carried forward indefinitely and $10.5 million will expire at various times between 2021 and 2040. Tax-effected U.S. state NOLs are $17.1 million. Of that amount, $3.7 million expire at various times between 2021 and 2025, $4.0 million expire at various times between 2026 and 2030, $3.2 million expire at various times between 2031 and 2035 and $6.2 million expire at various times between 2036 and 2040. At December 31, 2020, the tax-effected amount of U.S. Federal NOLs totaled $8.1 million. Of that amount, $6.3 million can be carried forward indefinitely and $1.8 million will expire at various times between 2033 and 2034.
Valuation allowances of $140.6 million, $127.1 million and $137.5 million at December 31, 2020, 2019 and 2018, respectively, related principally to deferred tax assets for pension liabilities, NOLs, foreign tax credit carryforwards, capital loss carryforwards and foreign currency translation that are uncertain as to realizability. In 2020, the Company recorded a valuation allowance reduction of $15.5 million related to foreign tax credit carryforwards due to statutory limitation expiration. The Company recorded a valuation allowance increase of $13.0 million related to pension liabilities, a net valuation allowance increase of $9.8 million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized, and a valuation allowance increase of $3.3 million from the effects of foreign currency translation adjustments. In 2019, the Company recorded a valuation allowance reduction of $12.5 million related to capital loss carryforwards, foreign tax credit carryforwards and state net operating loss carryforwards due to the losses and foreign tax credit carryforwards being utilized to reduce the tax liabilities on the capital gain realized as a result of the sale of AXC and PK. In addition, the Company recorded a valuation allowance reduction (and corresponding reduction to deferred tax assets) of $5.6 million due to the merger and liquidation of certain foreign dormant entities resulting in the loss of certain tax attributes, offset by a net increase of $7.9 million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized.
The Tax Act introduced a transition tax and a territorial tax system, which was effective beginning in 2018. The territorial tax system impacts the Company's overall global capital and legal entity structure, working capital, and repatriation plan on a go-forward basis. The Company asserts that all foreign earnings will be indefinitely reinvested to the extent of local needs and earnings that would be distributed in a taxable manner. The Company therefore intends to limit distributions to earnings previously taxed in the U.S., or earnings that would qualify for the 100 percent dividends received deduction provided for in the Tax Act, and earnings that would not result in any significant foreign taxes. Therefore, the Company has not recognized a deferred tax liability on its investment in foreign subsidiaries.
The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits in income tax expense or benefit. The Company recognized an income tax expense of $0.2 million and $0.3 million during 2020 and 2019,
respectively, for interest and penalty, and an income tax benefit of $0.2 million during 2018 for interest and penalties primarily due to the expiration of statutes of limitation and resolution of examinations. The Company has accrued $1.4 million, $1.2 million and $0.9 million for the payment of interest and penalties at December 31, 2020, 2019 and 2018, respectively.
A reconciliation of the change in the unrecognized income tax benefits balance from January 1, 2018 to December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Unrecognized
Income Tax
Benefits
|
|
Deferred
Income Tax
Benefits
|
|
Unrecognized
Income Tax
Benefits, Net of
Deferred Income
Tax Benefits
|
Balances, January 1, 2018
|
|
$
|
3,623
|
|
|
$
|
(31)
|
|
|
$
|
3,592
|
|
Additions for tax positions related to the current year (includes currency translation adjustment)
|
|
196
|
|
|
(1)
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutes of limitation expirations
|
|
(1,397)
|
|
|
6
|
|
|
(1,391)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
2,422
|
|
|
(26)
|
|
|
2,396
|
|
Additions for tax positions related to the current year (includes currency translation adjustment)
|
|
414
|
|
|
(7)
|
|
|
407
|
|
Additions for tax positions related to prior years (includes currency translation adjustment)
|
|
681
|
|
|
—
|
|
|
681
|
|
|
|
|
|
|
|
|
Statutes of limitation expirations
|
|
(326)
|
|
|
2
|
|
|
(324)
|
|
Settlements
|
|
(62)
|
|
|
9
|
|
|
(53)
|
|
Balance at December 31, 2019
|
|
3,129
|
|
|
(22)
|
|
|
3,107
|
|
|
|
|
|
|
|
|
Additions for tax positions related to the current year (includes currency translation adjustment)
|
|
596
|
|
|
(2)
|
|
|
594
|
|
|
|
|
|
|
|
|
Other reductions for tax positions related to prior years
|
|
(771)
|
|
|
—
|
|
|
(771)
|
|
Statutes of limitation expirations
|
|
(58)
|
|
|
2
|
|
|
(56)
|
|
|
|
|
|
|
|
|
Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2020
|
|
$
|
2,896
|
|
|
$
|
(22)
|
|
|
$
|
2,874
|
|
Within the next twelve months, it is reasonably possible that up to $0.6 million of unrecognized income tax benefits will be recognized upon settlement of income tax examinations and the expiration of various statutes of limitations.
The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. With few exceptions, the Company is no longer subject to U.S and international income tax examinations by tax authorities through 2014.
12. Commitments and Contingencies
Environmental
The Company is involved in a number of environmental remediation investigations and cleanups and, along with other companies, has been identified as a “potentially responsible party” for certain byproduct disposal sites. While each of these matters is subject to various uncertainties, it is probable that the Company will agree to make payments toward funding certain of these activities, and it is possible that some of these matters will be decided unfavorably to the Company. The Company has evaluated its potential liability and its financial exposure is dependent upon such factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the allocation of cost among potentially responsible parties, the years of remedial activity required and the remediation methods selected.
The Company evaluates its liability for future environmental remediation costs on a quarterly basis. Although actual costs to be incurred at identified sites in future periods may vary from the estimates (given inherent uncertainties in evaluating environmental exposures), the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with environmental matters in excess of the amounts accrued would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The following table summarizes information related to the location and undiscounted amount of the Company's environmental liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2020
|
|
December 31
2019
|
Current portion of environmental liabilities (a)
|
|
$
|
6,933
|
|
|
$
|
3,431
|
|
Long-term environmental liabilities
|
|
29,424
|
|
|
5,600
|
|
Total environmental liabilities
|
|
$
|
36,357
|
|
|
$
|
9,031
|
|
(a) The current portion of environmental liabilities is included in the caption Other current liabilities on the Company's Consolidated Balance Sheets.
Environmental liabilities relate primarily to the ESOL business which was acquired on April 6, 2020. As part of the ESOL acquisition, the Company assumed control of certain closed sites that were being monitored as part of ongoing environmental remediation plans. See Note 3, Acquisitions and Dispositions, for additional details.
Legal Proceedings
In the ordinary course of business, the company is a defendant or party to various claims and lawsuits, including those discussed below.
On January 27, 2020, the U.S. EPA issued a Notice of Potential Liability to the Company, along with several other companies, concerning the Newtown Creek Superfund Site located in Kings and Queens Counties in New York. The Notice alleges certain facilities formerly owned or operated by subsidiaries of the Company may have resulted in the discharge of hazardous substances into Newtown Creek or its Dutch Kills tributary. The site has been subject to CERCLA response activities since approximately 2011, and a feasibility study is currently being performed to evaluate a potential early action response for the lower two miles of the Creek. The Company is one of approximately seventeen (17) Potentially Responsible Parties that have received notices, though it is believed other PRPs may exist. The Company vigorously contests the allegations of the Notice and currently does not believe that this matter will have a material effect on the Company’s financial position.
On June 25 and 26, 2018, the DTSC conducted a compliance enforcement inspection of ESOL’s facility in Rancho Cordova, California, which was then owned by Stericycle, Inc. On February 14, 2020, the DTSC filed an action in the Superior Court for the State of California, Sacramento Division, alleging violations of California’s Hazardous Waste Control Law and the facility’s hazardous waste permit arising from the inspection. On August 27, 2020 the DTSC issued a Notice of Denial of Hazardous Waste Facility Permit Application. On September 25, 2020, the Company filed an administrative appeal. The DTSC investigation was ongoing well before the Company's acquisition of the ESOL business, and the Company was aware of the investigation and many of the issues raised in the investigation at the time of the purchase. Accordingly, the Company is indemnified for certain fines and other costs and expenses associated with this matter by Stericycle, Inc. As a result, the administrative appeal will be led by Stericycle, Inc. The Company has not accrued any amounts in respect of these alleged violations and cannot estimate the reasonably possible loss or the range of reasonably possible losses that it may incur.
As previously disclosed, the Company has had ongoing meetings with the SCE over processing salt cakes, a processing byproduct, stored at the Al Hafeerah site. The Company’s Bahrain operations that produced the salt cakes has ceased operations. An Environmental Impact Assessment and Technical Feasibility Study for facilities to process the salt cakes was approved by the SCE during the first quarter of 2018. Commissioning of the facilities is currently in progress and should be completed by the end of March 2021, and full operations are expected during the second half of 2021. The Company has previously established a reserve of $7.0 million, which represents the Company's best estimate of the ultimate costs to be incurred to resolve this matter. The Company continues to evaluate this reserve and any future change in estimated costs could be material to the Company’s results of operations in any one period.
On July 27, 2018 Brazil’s Federal and Rio de Janeiro State Public Prosecution Offices (MPF and MPE) filed a Civil Public Action against one of the Company's customers (CSN), the Company’s Brazilian subsidiary, the Municipality of Volta Redonda, Brazil, and the Instituto Estadual do Ambiente (local environmental protection agency) seeking the implementation of various measures to limit and reduce the accumulation of customer-owned slag at the site in Brazil. On August 6, 2018 the 3rd Federal Court in Volta Redonda granted the MPF and MPE an injunction against the same parties requiring, among other things, CSN and the Company’s Brazilian subsidiary to limit the volume of slag sent to the site. Because the customer owns the site and the slag located on the site, the Company believes that complying with this injunction is the steel producer’s responsibility. On March 18, 2019 the Court issued an order fining the Company 5,000 Brazilian reais per day (or approximately $1,000 per day) and CSN 20,000 Brazilian reais per day (or approximately $3,900 per day) until the requirements of the injunction are met. On November 1, 2019, the Court issued an additional order increasing the fines assessed to the Company to 25,000 Brazilian reais per day (or approximately $4,800 per day) and raising the fines assessed to CSN to 100,000 Brazilian reais per day (or approximately $19,300 per day). The Court also assessed an additional fine of 10,000,000 Brazilian reais (or approximately $1,925,000) against CSN and the Company jointly. The Company is appealing the fines and the underlying injunction. Both the Company and CSN continue to have discussions with the governmental authorities on the injunction and the possible resolution of the underlying case. The Company does not believe that a loss relating to this matter is probable or estimable at this point.
On October 19, 2018 local environmental authorities issued an enforcement action against the Company concerning the Company’s operations at a customer site in Ijmuiden, Netherlands. The enforcement action alleges violations of the Company’s environmental permit at the site, which restricts the release of any visible dust emissions. The enforcement action ordered the Company to cease all violations of the permit by October 31, 2018. The authorities have issued three additional
enforcement actions since that time and have asserted fines of approximately $0.7 million which the Company has recorded, with the possibility of additional fines for any future violations. The Company is vigorously contesting the enforcement action and fines and is also working with its customer to ensure the control of emissions. The Company has contractual indemnity rights from its customer, should it be required to pay the assessed fines.
DEA Investigation
Prior to the Company’s acquisition of ESOL, Stericycle, Inc, notified the Company that the DEA had served an administrative subpoena on Stericycle, Inc. and executed a search warrant at a facility in Rancho Cordova, California and an administrative inspection warrant at a facility in Indianapolis, Indiana. The Company has determined that the DEA and the DTSC have launched investigations involving, at least in part, the ESOL business of collecting, transporting, and destroying controlled substances from retail customers that transferred from Stericycle, Inc. to the Company. In connection with these investigations, the DEA also executed a search warrant on an ESOL facility in Austin Texas on July 2, 2020. The Company is cooperating with these inquiries, which relate primarily to the period before the Company owned the ESOL business. Since the acquisition of the ESOL business, the Company has performed a vigorous review of ESOL’s compliance program related to controlled substances and has made material changes to the manner in which controlled substances are transported from retail customers to DEA-registered facilities for destruction. The Company has not accrued any amounts in respect of these investigations and cannot estimate the reasonably possible loss or the range of reasonably possible losses that it may incur, if any. Investigations of this type are, by their nature, uncertain and unpredictable. While it is the Company’s position that it has recourse for some or all liabilities, if any, that arise from these matters under the ESOL purchase agreement and representations and warranties insurance policies purchased by the Company, there can be no assurances that the Company’s position will ultimately prevail.
Brazilian Tax Disputes
The Company is involved in a number of tax disputes with federal, state and municipal tax authorities in Brazil. These disputes are at various stages of the legal process, including the administrative review phase and the collection action phase, and include assessments of fixed amounts of principal and penalties, plus interest charges that increase at statutorily determined amounts per month and are assessed on the aggregate amount of the principal and penalties. In addition, the losing party, at the collection action or court of appeals phase, could be subject to a charge to cover statutorily mandated legal fees, which are generally calculated as a percentage of the total assessed amounts due, inclusive of penalty and interest. Many of the claims relate to ICMS, services and social security tax disputes. The largest proportion of the assessed amounts relate to ICMS claims filed by the SPRA, encompassing the period from January 2002 to May 2005.
In October 2009 the Company received notification of the SPRA’s final administrative decision regarding the levying of ICMS in the State of São Paulo in relation to services provided to a customer in the State between January 2004 and May 2005. As of December 31, 2020, the principal amount of the tax assessment from the SPRA with regard to this case is approximately $1.2 million, with penalty, interest and fees assessed to date increasing such amount by an additional $16.3 million. On June 4, 2018, the Appellate Court of the State of Sao Paulo ruled in favor of the SPRA but ruled that the assessed penalty should be reduced to approximately $1.2 million. After calculating the interest accrued on the penalty, the Company estimates that this ruling reduces the current overall potential liability for this case to approximately $7 million. All such amounts include the effect of foreign currency translation. The Company has appealed the ruling in favor of the SPRA to the Superior Court of Justice. Due to multiple court precedents in the Company's favor, as well as the Company's ability to appeal, the Company does not believe a loss is probable.
Another ICMS tax case involving the SPRA refers to the tax period from January 2002 to December 2003. In December 2018, the administrative tribunal hearing the case upheld the Company's liability. The Company has appealed to the judicial phase. The aggregate amount assessed by the tax authorities in August 2005 was $4.9 million (the amounts with regard to this claim are valued as of the date of the assessment since it has not yet reached the collection phase), composed of a principal amount of $1.2 million, with penalty and interest assessed through that date increasing such amount by an additional $3.7 million. On December 6, 2018, the administrative tribunal reduced the applicable penalties to $0.8 million. After calculating the interest accrued on the current penalty, the Company estimates that the current overall potential liability for this case to be approximately
$6 million. All such amounts include the effect of foreign currency translation. Due to multiple court precedents in the Company's favor the Company does not believe a loss is probable.
The Company continues to believe that sufficient coverage for these claims exists as a result of the indemnification obligations of the Company's customer and such customer’s pledge of assets in connection with the October 2009 notice, as required by Brazilian law.
On December 30, 2020, the Company received an assessment from the municipal authority in Ipatinga, Brazil alleging approximately $1.8 million in unpaid service taxes from the period 2015 to 2020. After calculating the interest and penalties accrued, the Company estimates that the current overall potential liability for this case to be approximately $3.0 million. On
January 18, 2021, the Company filed a challenge to the assessment. Due to the multiple defenses that are available, the Company does not believe a loss is probable.
The Company intends to continue its practice of vigorously defending itself against these tax claims under various alternatives, including judicial appeal. The Company will continue to evaluate its potential liability with regard to these claims on a quarterly basis; however, it is not possible to predict the ultimate outcome of these tax-related disputes in Brazil. No loss provision has been recorded in the Company's consolidated financial statements for the disputes described above because the loss contingency is not deemed probable, and the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with Brazilian tax disputes would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Brazilian Labor Disputes
The Company is subject to ongoing collective bargaining and individual labor claims in Brazil through the Harsco Environmental Segment which allege, among other things, the Company's failure to pay required amounts for overtime and vacation at certain sites. The Company is vigorously defending itself against these claims; however, litigation is inherently unpredictable, particularly in foreign jurisdictions. While the Company does not currently expect that the ultimate resolution of these claims will have a material adverse effect on the Company’s financial condition, results of operations or cash flows, it is not possible to predict the ultimate outcome of these labor-related disputes. As of December 31, 2020 and 2019, the Company has established reserves of $4.3 million and $6.5 million, respectively, on the Consolidated Balance Sheets for amounts considered to be probable and estimable.
Other
The Company is named as one of many defendants (approximately 90 or more in most cases) in legal actions in the U.S. alleging personal injury from exposure to airborne asbestos over the past several decades. In their suits, the plaintiffs have named as defendants, among others, many manufacturers, distributors and installers of numerous types of equipment or products that allegedly contained asbestos.
The Company believes that the claims against it are without merit. The Company has never been a producer, manufacturer or processor of asbestos fibers. Any asbestos-containing part of a Company product used in the past was purchased from a supplier and the asbestos encapsulated in other materials such that airborne exposure, if it occurred, was not harmful and is not associated with the types of injuries alleged in the pending actions.
At December 31, 2020, there were approximately 17,159 pending asbestos personal injury actions filed against the Company. Of those actions, approximately 16,599 were filed in the New York Supreme Court (New York County), approximately 119 were filed in other New York State Supreme Court Counties and approximately 441 were filed in courts located in other states.
The complaints in most of those actions generally follow a form that contains a standard damages demand of $20 million or $25 million, regardless of the individual plaintiff's alleged medical condition, and without identifying any specific Company product.
At December 31, 2020, approximately 16,549 of the actions filed in New York Supreme Court (New York County) were on the Deferred/Inactive Docket created by the court in December 2002 for all pending and future asbestos actions filed by persons who cannot demonstrate that they have a malignant condition or discernible physical impairment. The remaining approximately 50 cases in New York County are pending on the Active or In Extremis Docket created for plaintiffs who can demonstrate a malignant condition or physical impairment.
The Company has liability insurance coverage under various primary and excess policies that the Company believes will be available, if necessary, to substantially cover any liability that might ultimately be incurred in the asbestos actions referred to above. The costs and expenses of the asbestos actions are being paid by the Company’s insurers.
In view of the persistence of asbestos litigation in the U.S., the Company expects to continue to receive additional claims in the future. The Company intends to continue its practice of vigorously defending these claims and cases. At December 31, 2020, the Company has obtained dismissal in approximately 28,310 cases by stipulation or summary judgment prior to trial.
It is not possible to predict the ultimate outcome of asbestos-related actions in the U.S. due to the unpredictable nature of this litigation, and no loss provision has been recorded in the Company's consolidated financial statements because a loss contingency is not deemed probable or estimable. Despite this uncertainty, and although results of operations and cash flows for a given period could be adversely affected by asbestos-related actions, the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with asbestos litigation would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by established reserves, and, if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Insurance liabilities are recorded when it is probable that a liability has been incurred for a particular event and the amount of loss associated with the event can be reasonably estimated. Insurance reserves have been estimated based primarily upon actuarial calculations and reflect the undiscounted estimated liabilities for ultimate losses, including claims incurred but not reported. Inherent in these estimates are assumptions that are based on the Company's history of claims and losses, a detailed analysis of existing claims with respect to potential value, and current legal and legislative trends. If actual claims differ from those projected by management, changes (either increases or decreases) to insurance reserves may be required and would be recorded through income in the period the change was determined. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Insurance claim receivables are included in Insurance claim receivable and Other receivables on the Consolidated Balance Sheets. See Note 1, Summary of Significant Accounting Policies, for additional information on Accrued insurance and loss reserves.
13. Capital Stock
The authorized capital stock of the Company consists of 150,000,000 shares of common stock and 4,000,000 shares of preferred stock, both having a par value of $1.25 per share. The preferred stock is issuable in series with terms as fixed by the Board of Directors (the "Board"). No preferred stock has been issued. The following table summarizes the Company's common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued
|
|
Treasury
Shares (a)
|
|
Outstanding
Shares
|
Outstanding, January 1, 2018
|
|
112,888,126
|
|
|
32,434,274
|
|
|
80,453,852
|
|
|
|
|
|
|
|
|
Shares issued for vested restricted stock units
|
|
545,908
|
|
|
161,774
|
|
|
384,134
|
|
Stock appreciation rights exercised
|
|
39,917
|
|
|
11,808
|
|
|
28,109
|
|
|
|
|
|
|
|
|
Treasury shares purchased
|
|
—
|
|
|
1,321,072
|
|
|
(1,321,072)
|
|
Outstanding, December 31, 2018
|
|
113,473,951
|
|
|
33,928,928
|
|
|
79,545,023
|
|
|
|
|
|
|
|
|
Shares issued for vested restricted stock units
|
|
321,965
|
|
|
125,863
|
|
|
196,102
|
|
Shares issued for vested performance stock units
|
|
908,566
|
|
|
379,353
|
|
|
529,213
|
|
Stock appreciation rights exercised
|
|
15,865
|
|
|
4,619
|
|
|
11,246
|
|
|
|
|
|
|
|
|
Treasury shares purchased
|
|
—
|
|
|
1,766,826
|
|
|
(1,766,826)
|
|
Outstanding, December 31, 2019
|
|
114,720,347
|
|
|
36,205,589
|
|
|
78,514,758
|
|
|
|
|
|
|
|
|
Shares issued for vested restricted stock units
|
|
229,413
|
|
|
91,188
|
|
|
138,225
|
|
Shares issued for vested performance stock units
|
|
471,412
|
|
|
206,261
|
|
|
265,151
|
|
Stock appreciation rights exercised
|
|
8,870
|
|
|
2,634
|
|
|
6,236
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2020
|
|
115,430,042
|
|
|
36,505,672
|
|
|
78,924,370
|
|
(a) The Company repurchases shares in connection with the issuance of shares under stock-based compensation programs and in accordance with Board authorized share repurchase programs.
The following is a reconciliation of the average shares of common stock used to compute basic earnings per common share to the shares used to compute diluted earnings per common share as shown on the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2020
|
|
2019
|
|
2018
|
Income (loss) from continuing operations attributable to Harsco Corporation common stockholders
|
|
$
|
(32,526)
|
|
|
$
|
28,231
|
|
|
$
|
100,578
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding—basic
|
|
78,939
|
|
|
79,632
|
|
|
80,716
|
|
Dilutive effect of stock-based compensation
|
|
—
|
|
|
1,743
|
|
|
2,879
|
|
Weighted-average shares outstanding—diluted
|
|
78,939
|
|
|
81,375
|
|
|
83,595
|
|
Income (loss) from continuing operations per common share, attributable to Harsco Corporation common stockholders:
|
Basic
|
|
$
|
(0.41)
|
|
|
$
|
0.35
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.41)
|
|
|
$
|
0.35
|
|
|
$
|
1.20
|
|
The following average outstanding stock-based compensation units were not included in the computation of diluted earnings per share because the effect was antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
Restricted stock units
|
|
714
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Stock appreciation rights
|
|
2,474
|
|
|
491
|
|
|
306
|
|
Performance share units
|
|
887
|
|
|
124
|
|
|
—
|
|
|
|
|
|
|
|
|
14. Stock-Based Compensation
During 2020, the Company's stockholders and Board of Directors approved Amendment No. 2 to the 2013 Equity and Incentive Compensation Plan ("Amendment No. 2"). Amendment No. 2 increased the number of shares available for new awards and increased the number of shares that may be issued or transferred by the Company in connection with awards other than option rights or stock appreciation rights ("SAR's"). The 2013 Equity and Incentive Plan as amended (the "2013 Plan") authorizes the issuance of up to 9.9 million shares of the Company's common stock for use in paying incentive compensation awards in the form of stock options or other equity awards such as restricted stock, restricted stock units ("RSUs"), stock appreciation rights ("SARs") or performance share units ("PSUs"). Of the 9.9 million shares authorized, a maximum of 6.5 million shares may be issued for awards other than option rights or SARs, as defined in the 2013 Plan. The 2016 Non-Employee Directors' Long-Term Equity Compensation Plan (the "2016 Plan") authorizes the issuance of up to 400 thousand shares of the Company's common stock for equity awards. Both plans have been approved by the Company's stockholders. At December 31, 2020, there were 3.0 million shares available for granting equity awards under the 2013 Plan, of which 2.3 million shares were available for awards other than option rights or SARs. At December 31, 2020, there were 123 thousand shares available for granting equity awards under the 2016 Plan.
Restricted Stock Units
The Company's Board approves the granting of performance-based RSUs as the long-term equity component of director, officer and certain key employee compensation. The RSUs require no payment from the recipient and compensation cost is measured based on the market price of the Company's common stock on the grant date and is generally recorded over the vesting period. RSUs granted to officers and certain key employees in 2018, 2019 and 2020 either vest on a pro-rata basis over three years or upon obtainment of specified retirement or years of service criteria. The vesting period for RSUs granted to non-employee directors is one year and each RSU is exchanged for an equal number of shares of the Company's common stock upon vesting for awards issued under the 2016 Plan and following the termination of the participant's service as a director under prior plans. RSUs do not have an option for cash payment.
The following table summarizes RSUs issued and the compensation expense recorded for the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs (a)
|
|
Weighted Average Fair Value
|
|
Expense
|
(Dollars in thousands, except per unit)
|
|
|
|
2020
|
|
2019
|
|
2018
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
56,203
|
|
|
$
|
13.70
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
179
|
|
2018
|
|
43,821
|
|
|
20.54
|
|
|
—
|
|
|
280
|
|
|
511
|
|
2019
|
|
14,211
|
|
|
25.33
|
|
|
—
|
|
|
240
|
|
|
—
|
|
2020
|
|
34,986
|
|
|
10.29
|
|
|
360
|
|
|
—
|
|
|
—
|
|
Employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
239,679
|
|
|
16.53
|
|
|
—
|
|
|
—
|
|
|
193
|
|
2016
|
|
536,773
|
|
|
7.09
|
|
|
—
|
|
|
290
|
|
|
835
|
|
2017
|
|
286,251
|
|
|
13.70
|
|
|
95
|
|
|
832
|
|
|
910
|
|
2018
|
|
242,791
|
|
|
19.93
|
|
|
827
|
|
|
1,208
|
|
|
1,546
|
|
2019
|
|
270,864
|
|
|
22.25
|
|
|
1,381
|
|
|
1,620
|
|
|
—
|
|
2020
|
|
522,087
|
|
|
8.22
|
|
1,337
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
4,000
|
|
|
$
|
4,470
|
|
|
$
|
4,174
|
|
(a) Represents number of awards originally issued.
RSU activity for the year ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Grant-Date
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2019
|
|
466,609
|
|
|
$
|
20.26
|
|
Granted
|
|
557,073
|
|
|
8.35
|
|
Vested
|
|
(230,740)
|
|
|
18.66
|
|
Forfeited
|
|
(106,655)
|
|
|
15.67
|
|
Non-vested at December 31, 2020
|
|
686,287
|
|
|
11.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2020, the total unrecognized compensation expense related to non-vested RSUs was $4.6 million, which will be recognized over a weighted-average period of 1.8 years.
The total fair value of RSU's vested in 2020, 2019 and 2018 was $4.3 million, $4.7 million and $6.0 million, respectively.
Stock Appreciation Rights
The Company's Board approves the granting of SARs to officers and certain key employees under the 2013 Plan. The SARs generally vest on a pro-rata three-year basis from the grant date or upon specified retirement or years of service criteria and expire no later than ten years after the grant date. The exercise price of the SARs is equal to the fair value of Harsco common stock on the grant date. Upon exercise, shares of the Company's common stock are issued based on the increase in the fair value of the Company's common stock over the exercise price of the SAR. SARs do not have an option for cash payment.
During 2018, the Company issued SARS covering 221,818 shares in March and 7,622 in July under the 2013 Plan. During 2019, the Company issued SARS covering 216,100 shares in March and 13,244 shares in July under the 2013 Plan. During 2020, the Company issued SARS covering 785,152 shares in March and 20,526 in October under the 2013 Plan.
The fair value of each SAR grant was estimated on the grant date using a Black-Scholes pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free Interest rate
|
|
Dividend Yield
|
|
Expected Life (Years)
|
|
Volatility
|
|
SAR Grant Price
|
|
Fair Value of SAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2018 Grant
|
|
2.69
|
%
|
|
—
|
%
|
|
6.0
|
|
44.6
|
%
|
|
$
|
19.80
|
|
|
$
|
9.16
|
|
July 2018 Grant
|
|
2.87
|
%
|
|
—
|
%
|
|
6.0
|
|
44.7
|
%
|
|
24.65
|
|
|
11.48
|
|
March 2019 Grant
|
|
2.52
|
%
|
|
—
|
%
|
|
6.0
|
|
46.2
|
%
|
|
22.51
|
|
|
10.62
|
|
July 2019 Grant
|
|
1.84
|
%
|
|
—
|
%
|
|
6.0
|
|
47.1
|
%
|
|
27.39
|
|
|
12.80
|
|
March 2020 Grant
|
|
0.76
|
%
|
|
—
|
%
|
|
6.0
|
|
45.2
|
%
|
|
10.29
|
|
|
3.03
|
|
October 2020 Grant
|
|
0.44
|
%
|
|
—
|
%
|
|
6.0
|
|
60.3
|
%
|
|
14.89
|
|
|
8.12
|
|
The March 2020 Grant's fair value was estimated using a Monte Carlo simulation because the exercise price is greater than the fair value of Harsco common stock on the grant date.
SARs activity for the year ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Aggregate Intrinsic Value (in millions) (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2019
|
|
1,908,220
|
|
|
$
|
16.44
|
|
|
$
|
13.0
|
|
|
|
Granted
|
|
805,678
|
|
|
10.41
|
|
|
|
|
|
Exercised
|
|
(60,532)
|
|
|
9.17
|
|
|
|
|
|
Forfeited/Expired
|
|
(252,235)
|
|
|
18.63
|
|
|
|
|
|
Outstanding, December 31, 2020
|
|
2,401,131
|
|
|
14.37
|
|
|
11.7
|
|
|
|
(b) Intrinsic value is defined as the difference between the current market value and the exercise price, for those SARs where the market price exceeds the exercise price.
The total intrinsic value of SARs exercised in 2020, 2019 and 2018 was $0.5 million, $0.3 million, and $0.5 million, respectively.
The following table summarizes information concerning outstanding and exercisable SARs at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs Outstanding
|
|
SARs Exercisable
|
Range of exercisable prices
|
|
Vested
|
|
Non-vested
|
|
Weighted-Average Exercise Price per Share
|
|
Weighted-Average Remaining Contractual Life in Years
|
|
Number Exercisable
|
|
Weighted-Average Exercise Price per Share
|
$7.00 - $14.89
|
|
677,299
|
|
|
711,856
|
|
|
$
|
9.95
|
|
|
7.54
|
|
677,299
|
|
|
$
|
9.45
|
|
$16.53 - $22.70
|
|
646,894
|
|
|
163,550
|
|
|
19.33
|
|
|
5.52
|
|
646,894
|
|
|
18.75
|
|
$23.25 - $26.92
|
|
198,991
|
|
|
2,541
|
|
|
24.87
|
|
|
3.61
|
|
198,991
|
|
|
24.87
|
|
|
|
1,523,184
|
|
|
877,947
|
|
|
14.37
|
|
|
6.53
|
|
1,523,184
|
|
|
15.41
|
|
Total compensation expense related to SARs was $1.8 million, $1.9 million and $1.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. At December 31, 2020, total unrecognized compensation expense related to non-vested SARs was $2.5 million, which will be recognized over a weighted average period of 1.8 years.
Weighted-average grant date fair value of non-vested SARs for the year ended December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares, December 31, 2019
|
|
449,736
|
|
|
$
|
9.32
|
|
Granted
|
|
805,678
|
|
|
3.16
|
|
Vested
|
|
(253,741)
|
|
|
7.81
|
|
Forfeited
|
|
(123,726)
|
|
|
6.54
|
|
Non-vested shares, December 31, 2020
|
|
877,947
|
|
877947
|
4.50
|
|
Performance Share Units
The Company's Board approves the granting of PSUs to officers and certain key employees that may be earned based on the Company's total shareholder return over the three-year performance period. PSUs are paid out at the end of each performance period based on the Company’s performance, which is measured by determining the percentile rank of the total shareholder return of the Company's common stock in relation to the total shareholder return of a specific peer group of companies. The peer group of companies utilized is the S&P 600 Industrial Index. The payment of PSUs following the performance period will be based in accordance with the scale set forth in the PSU agreements, and may range from 0% to 200% of the initial grant. PSUs do not have an option for cash payment.
During the year ended December 31, 2018, the Company granted 233,266 shares in March and 6,742 shares in July under the 2013 Plan. During the year ended December 31, 2019, the Company granted 233,112 shares in March, 6,189 shares in July and 38,006 shares in August under the 2013 Plan. During the year ended December 31, 2020, the Company granted 513,995 shares in March and 11,194 shares in October under the 2013 Plan. The fair value of PSUs granted was estimated on the grant date using a Monte Carlo pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free Interest rate
|
|
Dividend Yield
|
|
Expected Life (Years)
|
|
Volatility
|
|
Fair Value of PSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2018 Grant
|
|
2.36
|
%
|
|
—
|
%
|
|
2.83
|
|
34.7
|
%
|
|
$
|
29.56
|
|
July 2018 Grant
|
|
2.69
|
%
|
|
—
|
%
|
|
2.42
|
|
33.1
|
%
|
|
39.06
|
|
March 2019 Grant
|
|
2.48
|
%
|
|
—
|
%
|
|
2.82
|
|
33.8
|
%
|
|
29.04
|
|
July 2019 Grant
|
|
1.75
|
%
|
|
—
|
%
|
|
2.50
|
|
34.3
|
%
|
|
40.07
|
|
August 2019 Grant
|
|
1.57
|
%
|
|
—
|
%
|
|
2.41
|
|
34.9
|
%
|
|
23.38
|
|
March 2020 Grant
|
|
0.56
|
%
|
|
—
|
%
|
|
2.81
|
|
36.0
|
%
|
|
4.40
|
|
October 2020 Grant
|
|
0.17
|
%
|
|
—
|
%
|
|
2.20
|
|
53.7
|
%
|
|
17.01
|
|
Total compensation expense related to PSUs was $3.4 million, $5.1 million and $4.3 million for the years ended
December 31, 2020, 2019 and 2018, respectively. At December 31, 2020, total unrecognized compensation expense related to non-vested PSUs was $3.4 million, which will be recognized over a weighted average period of 1.4 years.
A summary of the Company's non-vested PSU activity during the year ending December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares, December 31, 2019
|
|
465,584
|
|
|
$
|
28.95
|
|
Granted
|
|
525,189
|
|
|
4.67
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(124,523)
|
|
|
21.08
|
|
Vested, not issued (c)
|
|
(169,932)
|
|
|
29.76
|
|
Non-vested shares, December 31, 2020
|
|
696,318
|
|
|
11.85
|
|
(c) The measurement period for PSUs issued in 2018 ended on December 31, 2020 and these shares vested but will not be issued until the Board certifies the measurement period results in early 2021. A total of 124,050 shares are expected to be issued.
15. Financial Instruments
Off-Balance Sheet Risk
As collateral for the Company's performance and to insurers, the Company is contingently liable under standby letters of credit, bonds and bank guarantees in the amounts of $410.6 million, $281.8 million and $285.4 million at December 31, 2020, 2019 and 2018, respectively. The increase in 2020 is related to letters of credit issued for new contracts for Harsco Rail and bonds associated with the ESOL acquisition. The expiration periods of the standby letters of credit, bonds and bank guarantees range from less than 1 year to over 5 years but the majority are generally in force for up to 2 years. Certain issues have no scheduled expiration date. The Company pays fees to various banks and insurance companies that range from 0.4% to 3.7% per annum of the instrument's face value. If the Company were required to obtain replacement standby letters of credit, bonds and bank guarantees at December 31, 2020 for those currently outstanding, it is the Company's opinion that the replacement costs would be within the present fee structure.
The Company has currency exposures in approximately 30 countries. The Company's primary foreign currency exposures during 2020 were in the European Union, the U.K., Brazil and China.
Off-Balance Sheet Risk—Third-Party Guarantees
Any liabilities related to the Company's obligation to stand ready to act on third-party guarantees are included in Other current liabilities or Other liabilities (as appropriate) on the Consolidated Balance Sheets. Any recognition of these liabilities did not have a material impact on the Company's financial position or results of operations for 2020, 2019 or 2018.
In the normal course of business, legal indemnifications are provided related primarily to the performance of the Company's products and services and patent and trademark infringement of the products and services sold. These indemnifications generally relate to the performance (regarding function, not price) of the respective products or services and therefore no liability is recognized related to the fair value of such guarantees.
Derivative Instruments and Hedging Activities
The Company uses derivative instruments, including foreign currency exchange forward contracts, interest rate swaps and CCIRs, to manage certain foreign currency and interest rate exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for trading or speculative purposes. All derivative instruments are recorded on the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.
The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs, such as forward rates, interest rates, the Company’s credit risk and counterparties’ credit risks, and which minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the ability to observe those inputs. Foreign currency exchange forward contracts, interest rate swaps and CCIRs are based upon pricing models using market-based inputs (Level 2). Model inputs can be verified and valuation techniques do not involve significant management judgment.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The Company utilizes market data or assumptions that the Company believes market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.
The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs), and (2) an entity’s own assumptions about market participant assumptions based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which give the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described below:
•Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
•Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•Level 3—Inputs that are both significant to the fair value measurement and unobservable.
In instances in which multiple levels of inputs are used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The fair value of outstanding derivative contracts recorded as assets and liabilities on the Consolidated Balance Sheets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value of Derivatives Designated as Hedging Instruments
|
|
Fair Value of Derivatives Not Designated as Hedging Instruments
|
|
Total Fair Value
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Asset derivatives (Level 2):
|
|
|
|
|
|
|
|
|
Foreign currency exchange forward contracts
|
|
Other current assets
|
|
$
|
900
|
|
|
$
|
2,777
|
|
|
$
|
3,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
900
|
|
|
$
|
2,777
|
|
|
$
|
3,677
|
|
Liability derivatives (Level 2):
|
Foreign currency exchange forward contracts
|
|
Other current liabilities
|
|
$
|
950
|
|
|
$
|
4,098
|
|
|
$
|
5,048
|
|
Interest rate swaps
|
|
Other current liabilities
|
|
3,959
|
|
|
—
|
|
|
3,959
|
|
Interest rate swaps
|
|
Other liabilities
|
|
3,718
|
|
|
—
|
|
|
3,718
|
|
Total
|
|
|
|
$
|
8,627
|
|
|
$
|
4,098
|
|
|
$
|
12,725
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Asset derivatives (Level 2):
|
|
|
|
|
|
|
|
|
Foreign currency exchange forward contracts
|
|
Other current assets
|
|
$
|
2,039
|
|
|
$
|
946
|
|
|
$
|
2,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
2,039
|
|
|
$
|
946
|
|
|
$
|
2,985
|
|
Liability derivatives (Level 2):
|
Foreign currency exchange forward contracts
|
|
Other current liabilities
|
|
$
|
140
|
|
|
$
|
3,733
|
|
|
$
|
3,873
|
|
Interest rate swaps
|
|
Other current liabilities
|
|
2,098
|
|
|
—
|
|
|
2,098
|
|
Interest rate swaps
|
|
Other liabilities
|
|
4,281
|
|
|
—
|
|
|
4,281
|
|
Total
|
|
|
|
$
|
6,519
|
|
|
$
|
3,733
|
|
|
$
|
10,252
|
|
All of the Company's derivatives are recorded on the Consolidated Balance Sheets at gross amounts and not offset. All of the Company's interest rate swaps, CCIRs and certain foreign currency exchange forward contracts are transacted under ISDA documentation. Each ISDA master agreement permits the net settlement of amounts owed in the event of default. The Company's derivative assets and liabilities subject to enforceable master netting arrangements did not result in a net asset or liability at December 31, 2020 or 2019.
The effect of derivative instruments on the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income (Loss):
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Recognized in
OCI on Derivatives
|
|
Location of Amount Reclassified
from AOCI into Income
|
|
Amount Reclassified from
AOCI into Income - Effective Portion or Equity
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
2020
|
|
2019
|
|
2018
|
Foreign currency exchange forward contracts
|
|
$
|
(930)
|
|
|
$
|
(1,227)
|
|
|
$
|
1,935
|
|
|
Product revenues/Cost of services sold
|
|
$
|
(1,026)
|
|
|
$
|
(506)
|
|
|
$
|
(374)
|
|
Foreign currency exchange forward contracts (a)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Retained earnings (b)
|
|
—
|
|
|
—
|
|
|
(1,520)
|
|
Interest rate swaps
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income from discontinued businesses
|
|
—
|
|
|
2,741
|
|
|
—
|
|
Interest rate swaps
|
|
(3,889)
|
|
|
(8,209)
|
|
|
1,451
|
|
|
Interest expense
|
|
2,589
|
|
|
(520)
|
|
|
(1,108)
|
|
CCIRs(a)
|
|
39
|
|
|
(42)
|
|
|
63
|
|
|
Interest expense
|
|
1,015
|
|
|
1,219
|
|
|
1,264
|
|
|
|
$
|
(4,780)
|
|
|
$
|
(9,478)
|
|
|
$
|
3,449
|
|
|
|
|
$
|
2,578
|
|
|
$
|
2,934
|
|
|
$
|
(1,738)
|
|
(a)Amounts represent changes in foreign currency translation related to balances in AOCI.
(b)The Company adopted the new revenue recognition standard utilizing the modified retrospective transition method, including use of practical expedients in 2018.
The location and amount of gain (loss) recognized on the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(in thousands)
|
|
Product Revenues
|
|
|
|
Interest Expense
|
|
|
Total amounts of line items presented in the statement of operations in which the effects of cash flow hedges are recorded
|
|
$
|
431,574
|
|
|
|
|
$
|
(59,689)
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
|
|
(2,589)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
1,026
|
|
|
|
|
—
|
|
|
|
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value
|
|
197
|
|
|
|
|
—
|
|
|
|
Amount excluded from the effectiveness testing recognized in earnings based on an amortization approach
|
|
31
|
|
|
|
|
—
|
|
|
|
CCIRs:
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
|
|
(1,015)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(in thousands)
|
|
Product Revenues
|
|
Cost of Services Sold
|
|
Interest Expense
|
|
Income From Discontinued Businesses
|
Total amounts of line items presented in the statement of operations in which the effects of cash flow hedges are recorded
|
|
$
|
415,115
|
|
|
$
|
843,926
|
|
|
$
|
(36,586)
|
|
|
$
|
27,531
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
—
|
|
|
520
|
|
|
—
|
|
Gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,741)
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
550
|
|
|
(44)
|
|
|
—
|
|
|
—
|
|
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value
|
|
509
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
CCIRs:
|
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
—
|
|
|
(1,219)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
(in thousands)
|
|
Product Revenues
|
|
Cost of Services Sold
|
|
Interest Expense
|
Total amounts of line items presented in the statement of operations in which the effects of cash flow hedges are recorded
|
|
$
|
389,005
|
|
|
$
|
747,899
|
|
|
$
|
(21,531)
|
|
Interest rate swaps:
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
—
|
|
|
1,108
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
374
|
|
|
—
|
|
|
—
|
|
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value
|
|
(440)
|
|
|
1
|
|
|
—
|
|
|
|
|
|
|
|
|
CCIRs:
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
—
|
|
|
(1,264)
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Income on Derivatives
|
|
Amount of Gain (Loss) Recognized in Income on Derivatives for the Twelve Months Ended December 31(c)
|
(In thousands)
|
|
|
2020
|
|
2019
|
|
2018
|
Foreign currency exchange forward contracts
|
|
Cost of services and products sold
|
|
$
|
(9,052)
|
|
|
$
|
6,807
|
|
|
$
|
17,262
|
|
(c) These gains (losses) offset amounts recognized in cost of service and products sold principally as a result of intercompany or third-party foreign currency exposures.
Foreign Currency Exchange Forward Contracts
The Company conducts business in multiple currencies and, accordingly, is subject to the inherent risks associated with foreign exchange rate movements. Foreign currency-denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods.
The Company uses derivative instruments to hedge cash flows related to foreign currency fluctuations. Foreign currency exchange forward contracts outstanding are part of a worldwide program to minimize foreign currency exchange operating income and balance sheet exposure by offsetting foreign currency exposures of certain future payments between the Company and various subsidiaries, suppliers or customers. The unsecured contracts are with major financial institutions. The Company may be exposed to credit loss in the event of non-performance by the contract counterparties. The Company evaluates the creditworthiness of the counterparties and does not expect default by them. Foreign currency exchange forward contracts are used to hedge commitments, such as foreign currency debt, firm purchase commitments and foreign currency cash flows for certain export sales transactions.
Changes in the fair value of derivatives used to hedge foreign currency denominated balance sheet items are reported directly in earnings, along with offsetting transaction gains and losses on the items being hedged. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments may be accounted for as cash flow hedges, as deemed appropriate, if the criteria for hedge accounting are met. Gains and losses on derivatives designated as cash flow hedges are deferred in AOCI, a separate component of equity, and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized currently in earnings.
The recognized gains and losses offset amounts recognized in cost of services and products sold principally as a result of intercompany or third-party foreign currency exposures. At December 31, 2020 and December 31, 2019, the notional amounts of foreign currency exchange forward contracts were $460.5 million and $496.3 million, respectively. These contracts primarily hedge British pounds sterling and euros against other currencies and mature through September 2022.
In addition to foreign currency exchange forward contracts, the Company designates certain loans as hedges of net investments in international subsidiaries. The Company recorded pre-tax net gains of $0.4 million, pre-tax net gains of $7.7 million and pre-tax net losses of $9.9 million related to hedges of net investments during 2020, 2019 and 2018, respectively, in AOCI.
Interest Rate Swaps
The Company uses interest rate swaps in conjunction with certain variable rate debt issuances in order to secure a fixed interest rate. Changes in the fair value attributed to the effect of the swaps’ interest spread and changes in the credit worthiness of the counter-parties are recorded in AOCI.
In January 2017 and February 2018, the Company entered into a series of interest rate swaps that cover the period from 2018 through 2022 and had the effect of converting $300.0 million of the Term Loan Facility from floating-rate to fixed-rate. The fixed rates provided by the swaps replace the adjusted LIBOR rate in the interest calculation, ranging from 2.71% for 2021 to 3.12% for 2022.
During June 2019, the Company effected the early termination of interest rate swaps that covered the period from 2019 through 2022 and had the effect of converting $100.0 million of the Term Loan Facility from floating-rate to fixed-rate. This termination was conducted as a result of the Company's new Notes offering and required repayment of a portion of the Term Loan Facility with proceeds from the AXC disposal. The Company paid $2.8 million and recognized a loss of $2.7 million related to these terminations in Income from discontinued businesses on the Consolidated Statements of Operations. The total notional of the Company's interest rate swaps was $200.0 million as of December 31, 2020.
Cross-Currency Interest Rate Swaps
The Company may use CCIRs in conjunction with certain debt issuances in order to secure a fixed local currency interest rate. Under these CCIRs, the Company receives interest based on a fixed or floating U.S. dollar rate and pays interest on a fixed
local currency rate based on the contractual amounts in dollars and the local currency, respectively. At maturity, there is also the payment of principal amounts between currencies. Changes in the fair value attributed to the effect of the swaps' interest spread and changes in the credit worthiness of the counter-parties are recorded in AOCI. Changes in value attributed to the effect of foreign currency fluctuations are recorded in the Consolidated Statements of Operations and offset currency fluctuation effects on the debt principal. The Company had no outstanding CCIRs at December 31, 2020 or December 31, 2019.
Fair Value of Other Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term borrowings approximate fair value due to the short-term maturities of these assets and liabilities. At December 31, 2020 and 2019, the total fair value of long-term debt, including current maturities, was $1,324.9 million and $827.2 million, respectively, compared with a carrying value of $1,300.5 million and $795.0 million, respectively. Fair values for debt are based upon pricing models using market-based inputs (Level 2) for similar issues or on the current rates offered to the Company for debt of the same remaining maturities.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places cash and cash equivalents with high-quality financial institutions and, by policy, limits the amount of credit exposure to any single institution.
Concentrations of credit risk with respect to accounts receivable exist in the Company's Harsco Environmental Segment and, to a lesser extent, the Harsco Rail Segment which have several large customers throughout the world with significant accounts receivable balances. Consolidation in the global steel or rail industries could result in an increase in concentration of credit risk for the Company. The Clean Earth Segment also has significant sales to a U.S. customer.
The Company generally does not require collateral or other security to support customer receivables. If a receivable from one or more of the Company's larger customers becomes uncollectible, it could have a material effect on the Company's results of operations or cash flows.
16. Information by Segment and Geographic Area
The Company reports information about operating segments using the "management approach," which is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance. The Company's reportable segments are identified based upon differences in products, services and markets served. In 2020, the Company had three reportable segments. These segments and the types of products and services offered include the following:
Harsco Environmental
The Segment provides environmental services and material processing to the global steel and metals industries. The Segment partners with its global customer base to deliver production-critical on-site operational support and resource recovery services, through management of its customers’ primary waste or byproduct streams. The Segment's services support the metal manufacturing process, generating significant operational and financial efficiencies for its customers and allowing them to focus on their core steelmaking businesses. In addition, this Segment creates value-added downstream products from industrial waste streams.
Harsco Clean Earth
The Segment is one of the largest specialty waste processing companies in the U.S., providing processing and beneficial reuse solutions for hazardous wastes, contaminated materials, and dredged volumes.
Harsco Rail Segment
The Segment is a supplier of equipment, after-market parts and services for the construction and maintenance of railway track. The Segment manufactures highly-engineered railway track maintenance equipment and supports a large installed-base of Harsco equipment with a full suite of aftermarket parts. The Segment is a leading supplier of collision avoidance and warning systems to enhance passenger, rail worker, and pedestrian safety, and pioneered a number of measurement and diagnostic technologies that further support railway maintenance programs.
Other Information
The measurement basis of segment profit or loss is operating income. There are no significant inter-segment sales. Corporate assets, at December 31, 2020 and 2019, include principally cash, prepaid taxes, fair value of derivative instruments and U.S.
deferred income taxes. Countries with revenues from unaffiliated customers or net property, plant and equipment of ten percent or more of the consolidated totals (in at least one period presented) are as follows:
Information by Geographic Area (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from Unaffiliated Customers
|
|
|
Twelve Months Ended December 31
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
U.S.
|
|
$
|
1,048,059
|
|
|
$
|
640,390
|
|
|
$
|
458,383
|
|
U.K.
|
|
138,447
|
|
|
144,689
|
|
|
143,346
|
|
|
|
|
|
|
|
|
All Other
|
|
677,358
|
|
|
718,663
|
|
|
745,943
|
|
Totals including Corporate
|
|
$
|
1,863,864
|
|
|
$
|
1,503,742
|
|
|
$
|
1,347,672
|
|
(a) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net
|
|
|
December 31
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
U.S.
|
|
$
|
286,933
|
|
|
$
|
193,692
|
|
|
$
|
98,851
|
|
China
|
|
109,660
|
|
|
99,369
|
|
|
89,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
271,616
|
|
|
268,725
|
|
|
244,440
|
|
Totals including Corporate
|
|
$
|
668,209
|
|
|
$
|
561,786
|
|
|
$
|
432,793
|
|
No customer provided in excess of 10% of the Company's consolidated revenues in 2020. One customer provided in excess of 10% of the Company's consolidated revenues in 2019 and 2018.
In 2020, 2019 and 2018, the Harsco Environmental Segment had one customer that provided in excess of 10% of this Segment's revenues under multiple long-term contracts at several mill sites. Should additional consolidations occur involving some of the steel industry's larger companies which are customers of the Company, it would result in an increase in concentration of credit risk for the Company. The loss of any one of the contracts would not have a material adverse effect upon the Company's financial position or cash flows; however, it could have a significant effect on quarterly or annual results of operations.
In 2020, Harsco Clean Earth had one customer that provided in excess of 10% of the Segment's revenue and in 2019, no customers in excess of 10% of the Segment's revenues. In 2020, 2019 and 2018, the Harsco Rail Segment had one customer that provided in excess of 10% of the Segment's revenues. The loss of any of these customers would not have a material adverse impact on the Company's financial positions or cash flows; however, it could have a material effect on quarterly or annual results of operations.
Operating Information by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
Revenues (b)
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
914,445
|
|
|
$
|
1,034,847
|
|
|
$
|
1,068,304
|
|
Harsco Clean Earth
|
|
619,588
|
|
|
169,522
|
|
|
—
|
|
Harsco Rail
|
|
329,831
|
|
|
299,373
|
|
|
279,294
|
|
Corporate
|
|
—
|
|
|
—
|
|
|
74
|
|
Total Revenues
|
|
$
|
1,863,864
|
|
|
$
|
1,503,742
|
|
|
$
|
1,347,672
|
|
Operating Income (Loss) (b)
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
59,006
|
|
|
$
|
112,298
|
|
|
$
|
121,195
|
|
Harsco Clean Earth
|
|
16,096
|
|
|
20,009
|
|
|
—
|
|
Harsco Rail
|
|
20,219
|
|
|
23,708
|
|
|
37,341
|
|
Corporate
|
|
(74,240)
|
|
|
(51,736)
|
|
|
(27,841)
|
|
Total Operating Income
|
|
$
|
21,081
|
|
|
$
|
104,279
|
|
|
$
|
130,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
Total Assets
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
1,322,731
|
|
|
$
|
1,296,061
|
|
|
$
|
1,230,152
|
|
Harsco Clean Earth
|
|
1,279,387
|
|
|
745,410
|
|
|
—
|
|
Harsco Rail
|
|
334,191
|
|
|
246,377
|
|
|
186,049
|
|
Corporate
|
|
56,978
|
|
|
26,037
|
|
|
53,342
|
|
Discontinued Operations
|
|
—
|
|
|
53,582
|
|
|
163,324
|
|
Total Assets
|
|
$
|
2,993,287
|
|
|
$
|
2,367,467
|
|
|
$
|
1,632,867
|
|
Depreciation (b)
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
100,971
|
|
|
$
|
104,840
|
|
|
$
|
109,494
|
|
Harsco Clean Earth
|
|
17,450
|
|
|
4,932
|
|
|
—
|
|
Harsco Rail
|
|
5,113
|
|
|
4,554
|
|
|
3,981
|
|
Corporate
|
|
2,022
|
|
|
2,737
|
|
|
2,737
|
|
Total Depreciation
|
|
$
|
125,556
|
|
|
$
|
117,063
|
|
|
$
|
116,212
|
|
Amortization (b)
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
7,825
|
|
|
$
|
7,286
|
|
|
$
|
5,565
|
|
Harsco Clean Earth
|
|
22,814
|
|
|
7,923
|
|
|
—
|
|
Harsco Rail
|
|
337
|
|
|
322
|
|
|
306
|
|
Corporate (c)
|
|
2,961
|
|
|
2,500
|
|
|
2,973
|
|
Total Amortization
|
|
$
|
33,937
|
|
|
$
|
18,031
|
|
|
$
|
8,844
|
|
Capital Expenditures (b)
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
99,056
|
|
|
$
|
153,694
|
|
|
$
|
114,142
|
|
Harsco Clean Earth
|
|
12,612
|
|
|
5,870
|
|
|
—
|
|
Harsco Rail
|
|
7,962
|
|
|
15,274
|
|
|
9,152
|
|
Corporate
|
|
488
|
|
|
1,762
|
|
|
1,313
|
|
Total Capital Expenditures
|
|
$
|
120,118
|
|
|
$
|
176,600
|
|
|
$
|
124,607
|
|
(b) The Company's acquisition of ESOL closed on April 6, 2020 and the Company's acquisition of Clean Earth closed on June 28, 2019. The operating results of the former Harsco Industrial Segment have been reflected as discontinued operations in the Company's Condensed Statement of Operations for all periods presented. See Note 3, Acquisitions and Dispositions, for additional details.
(c) Amortization expense on Corporate relates to the amortization of deferred financing costs.
Reconciliation of Segment Operating Income to Consolidated Income (Loss) From Continuing Operations Before Income Taxes and Equity Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
Segment operating income
|
|
$
|
95,321
|
|
|
$
|
156,015
|
|
|
$
|
158,536
|
|
General Corporate expense
|
|
(74,240)
|
|
|
(51,736)
|
|
|
(27,841)
|
|
Operating income from continuing operations
|
|
21,081
|
|
|
104,279
|
|
|
130,695
|
|
Interest income
|
|
2,174
|
|
|
1,975
|
|
|
2,155
|
|
Interest expense
|
|
(59,689)
|
|
|
(36,586)
|
|
|
(21,531)
|
|
Defined benefit pension income (expense)
|
|
7,229
|
|
|
(5,493)
|
|
|
3,457
|
|
Loss on early extinguishment of debt
|
|
(1,920)
|
|
|
(7,704)
|
|
|
(1,127)
|
|
Income (loss) from continuing operations before income taxes and equity income
|
|
$
|
(31,125)
|
|
|
$
|
56,471
|
|
|
$
|
113,649
|
|
17. Revenue Recognition
The Company recognizes revenues to depict the transfer of promised services and products to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services or products. Service revenues include the Harsco Clean Earth Segment and the service components of the Harsco Environmental and Harsco Rail Segments. Product revenues include portions of the Harsco Environmental and Harsco Rail Segments. See Note 1, Summary of Significant Accounting Policies, Revenue Recognition, for additional information.
A summary of the Company's revenues by primary geographical markets as well as by key product and service groups is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31, 2020
|
(In thousands)
|
|
Harsco
Environmental Segment
|
|
Harsco
Clean Earth Segment
|
|
Harsco
Rail
Segment
|
|
Corporate
|
|
Consolidated Totals
|
Primary Geographical Markets (a)(b):
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
249,904
|
|
|
$
|
619,588
|
|
|
$
|
217,638
|
|
|
$
|
—
|
|
|
$
|
1,087,130
|
|
Western Europe
|
|
377,066
|
|
|
—
|
|
|
78,549
|
|
|
—
|
|
|
455,615
|
|
Latin America (c)
|
|
119,457
|
|
|
—
|
|
|
7,098
|
|
|
—
|
|
|
126,555
|
|
Asia-Pacific
|
|
87,608
|
|
|
—
|
|
|
26,546
|
|
|
—
|
|
|
114,154
|
|
Middle East and Africa
|
|
63,427
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63,427
|
|
Eastern Europe
|
|
16,983
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,983
|
|
Total Revenues
|
|
$
|
914,445
|
|
|
$
|
619,588
|
|
|
$
|
329,831
|
|
|
$
|
—
|
|
|
$
|
1,863,864
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Product and Service Groups (a):
|
|
|
|
|
|
|
|
|
|
|
Environmental services related to resource recovery for metals manufacturing; and related logistical services
|
|
$
|
781,060
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
781,060
|
|
Applied products
|
|
120,432
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
120,432
|
|
Environmental systems for aluminum dross and scrap processing
|
|
12,953
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,953
|
|
Railway track maintenance equipment
|
|
—
|
|
|
—
|
|
|
184,076
|
|
|
—
|
|
|
184,076
|
|
After-market parts and services; safety and diagnostic technology
|
|
—
|
|
|
—
|
|
|
116,600
|
|
|
—
|
|
|
116,600
|
|
Railway contracting services
|
|
—
|
|
|
—
|
|
|
29,155
|
|
|
—
|
|
|
29,155
|
|
Waste processing and reuse solutions
|
|
—
|
|
|
619,588
|
|
|
—
|
|
|
—
|
|
|
619,588
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
914,445
|
|
|
$
|
619,588
|
|
|
$
|
329,831
|
|
|
$
|
—
|
|
|
$
|
1,863,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31, 2019
|
(In thousands)
|
|
Harsco Environmental Segment
|
|
Harsco
Clean Earth Segment
|
|
Harsco
Rail
Segment
|
|
Corporate
|
|
Consolidated Totals
|
Primary Geographical Markets (a)(b):
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
294,367
|
|
|
$
|
169,522
|
|
|
$
|
221,724
|
|
|
$
|
—
|
|
|
$
|
685,613
|
|
Western Europe
|
|
386,593
|
|
|
—
|
|
|
44,569
|
|
|
—
|
|
|
431,162
|
|
Latin America (c)
|
|
146,040
|
|
|
—
|
|
|
2,588
|
|
|
—
|
|
|
148,628
|
|
Asia-Pacific
|
|
128,949
|
|
|
—
|
|
|
30,492
|
|
|
—
|
|
|
159,441
|
|
Middle East and Africa
|
|
60,402
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,402
|
|
Eastern Europe
|
|
18,496
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,496
|
|
Total Revenues
|
|
$
|
1,034,847
|
|
|
$
|
169,522
|
|
|
$
|
299,373
|
|
|
$
|
—
|
|
|
$
|
1,503,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31, 2019
|
(In thousands)
|
|
Harsco Environmental Segment
|
|
Harsco
Clean Earth Segment
|
|
Harsco
Rail
Segment
|
|
Corporate
|
|
Consolidated Totals
|
Key Product and Service Groups (a):
|
|
|
|
|
|
|
|
|
|
|
Environmental services related to resource recovery for metals manufacturing; and related logistical services
|
|
$
|
888,850
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
888,850
|
|
Applied products
|
|
127,875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
127,875
|
|
Environmental systems for aluminum dross and scrap processing
|
|
18,122
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,122
|
|
Railway track maintenance equipment
|
|
—
|
|
|
—
|
|
|
145,968
|
|
|
—
|
|
|
145,968
|
|
After-market parts and services; safety and diagnostic technology
|
|
—
|
|
|
—
|
|
|
132,249
|
|
|
—
|
|
|
132,249
|
|
Railway contracting services
|
|
—
|
|
|
—
|
|
|
21,156
|
|
|
—
|
|
|
21,156
|
|
Waste processing and reuse solutions
|
|
—
|
|
|
169,522
|
|
|
—
|
|
|
—
|
|
|
169,522
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
1,034,847
|
|
|
$
|
169,522
|
|
|
$
|
299,373
|
|
|
$
|
—
|
|
|
$
|
1,503,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31, 2018
|
(In thousands)
|
|
Harsco Environmental Segment
|
|
Harsco
Clean Earth Segment
|
|
Harsco
Rail
Segment
|
|
Corporate
|
|
Consolidated Totals
|
Primary Geographical Markets (b):
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
302,238
|
|
|
$
|
—
|
|
|
$
|
205,212
|
|
|
$
|
74
|
|
|
$
|
507,524
|
|
Western Europe
|
|
390,840
|
|
|
—
|
|
|
48,016
|
|
|
—
|
|
|
438,856
|
|
Latin America (c)
|
|
151,886
|
|
|
—
|
|
|
3,977
|
|
|
—
|
|
|
155,863
|
|
Asia-Pacific
|
|
145,761
|
|
|
—
|
|
|
22,089
|
|
|
—
|
|
|
167,850
|
|
Middle East and Africa
|
|
50,003
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,003
|
|
Eastern Europe
|
|
27,576
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,576
|
|
Total Revenues
|
|
$
|
1,068,304
|
|
|
$
|
—
|
|
|
$
|
279,294
|
|
|
$
|
74
|
|
|
$
|
1,347,672
|
|
Key Product and Service Groups:
|
|
|
|
|
|
|
|
|
|
|
Environmental services related to resource recovery for metals manufacturing; and related logistical services
|
|
$
|
927,969
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
927,969
|
|
Applied products
|
|
128,488
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
128,488
|
|
Environmental systems for aluminum dross and scrap processing
|
|
11,847
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,847
|
|
Railway track maintenance equipment
|
|
—
|
|
|
—
|
|
|
112,547
|
|
|
—
|
|
|
112,547
|
|
After-market parts and services; safety and diagnostic technology
|
|
—
|
|
|
—
|
|
|
139,020
|
|
|
—
|
|
|
139,020
|
|
Railway contracting services
|
|
—
|
|
|
—
|
|
|
27,727
|
|
|
—
|
|
|
27,727
|
|
|
|
|
|
|
|
|
|
|
|
|
General Corporate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
74
|
|
Total Revenues
|
|
$
|
1,068,304
|
|
|
$
|
—
|
|
|
$
|
279,294
|
|
|
$
|
74
|
|
|
$
|
1,347,672
|
|
(a) The Company acquired ESOL in 2020 and Clean Earth in 2019. The results of both are included in the Harsco Clean Earth Segment. The operating results of the former Harsco Industrial Segment have been reflected as discontinued operations in the Company's Consolidated Statements of Operations. See Note 3, Acquisition and Dispositions, for additional details.
(b) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
(c) Includes Mexico.
The Company may receive payments in advance of earning revenue, which are treated as Advances on contracts on the Consolidated Balance Sheets. The Company may recognize revenue in advance of being able to contractually invoice the customer, which is treated as Contract assets on the Consolidated Balance Sheets. Contract assets are transferred to Trade accounts receivable, net, when right to payment becomes unconditional. Contract assets and Contract liabilities are reported as
a net position, on a contract-by-contract basis, at the end of each reporting period. These instances are primarily related to the Harsco Rail Segment.
The Company had Contract assets totaling $60.1 million at December 31, 2020 and $31.2 million at December 31, 2019. The increase is due principally to additional contract assets recognized in excess of the transfer of contract assets to accounts receivable. The Company had Advances on contracts totaling $84.9 million at December 31, 2020 and $60.3 million at December 31, 2019. The increase is due principally to the receipts of new advances on contracts in excess of the recognition of revenue on previously received advances on contracts during the period, primarily in the Harsco Rail Segment. During the year ended December 31, 2020, the Company recognized approximately $75 million of revenue related to amounts previously included in Advances on Contracts.
At December 31, 2020, the Harsco Environmental Segment had remaining, fixed, unsatisfied performance obligations, where the expected contract duration exceeds one year totaling $84.1 million. Of this amount, $24.8 million is expected to be fulfilled by December 31, 2021, $19.8 million by December 31, 2022, $14.2 million by December 31, 2023, $13.7 million by December 31, 2024 and the remainder thereafter. These amounts exclude any variable fees, fixed fees subject to indexation and any performance obligations expected to be satisfied within one year.
At December 31, 2020, the Harsco Rail Segment had remaining, fixed, unsatisfied performance obligations, where the expected contract duration exceeds one year totaling $317.5 million. Of this amount, $117.2 million is expected to be fulfilled by December 31, 2021, $117.2 million by December 31, 2022, $62.4 million by December 31, 2023, $17.1 million by December 31, 2024 and the remainder thereafter. These amounts exclude any variable fees, fixed fees subject to indexation and any performance obligations expected to be satisfied within one year.
The Company recognized an initial estimated forward loss provision related to the contracts with the federal railway system of Switzerland ("SBB") of $45.1 million for the year ended December 31, 2016. The Company recorded an additional forward loss provision of $1.8 million for the year ended December 31, 2018. At December 31, 2020 and 2019 the entire remaining estimated forward loss provision of $4.4 million and $6.4 million, respectively, is included in the caption Other current liabilities on the Consolidated Balance Sheets. The estimated forward loss provision represents the Company's best estimate based on currently available information. It is possible that the Company's overall estimate of costs to complete these contracts may increase, which would result in an additional estimated forward loss provision at such time.
The Company recognized $38.6 million, $23.4 million and $24.2 million of revenues for the contracts with SBB, on an over time basis, utilizing a cost-to-cost method for the years ended December 31, 2020, 2019 and 2018, respectively. The Company has substantially completed the first contract and is approximately 70% complete on the second contract with SBB as of December 31, 2020.
The Company is currently manufacturing seven multipurpose Stoneblower machines for the U.K.-based customer Network Rail under a long-term contract. Delivery of these machines have been delayed due to several factors, including customer expectations and requirements and COVID-19, and the Company's estimated delivery schedule would trigger liquidated damages. However, based on the nature of these delays and negotiations with the customer, the Company expects that it will get relief from the customer for most of these liquidated damages, and as such the Company's current estimate of contract revenues has not been reduced. However, if the Company is not granted relief, any adjustment to the estimate of these liquidated damages in the future could have a material impact on the Company’s results of operations in that period.
The Company provides assurance type warranties primarily for product sales in the Harsco Rail Segment. These warranties are typically not priced or negotiated separately (there is no option to separately purchase the warranty) or the warranty does not provide customers with a service in addition to the assurance that the product complies with agreed-upon specifications. Accordingly, such warranties do not represent separate performance obligations. See Note 1, Summary of Significant Accounting Policies for additional information on warranties.
18. Other (Income) Expenses, Net
The major components of this Consolidated Statements of Operations caption are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
Net gains
|
|
|
|
|
|
|
Harsco Environmental Segment
|
|
$
|
(3,723)
|
|
|
$
|
(6,303)
|
|
|
$
|
(2,650)
|
|
Corporate
|
|
—
|
|
|
—
|
|
|
(1,218)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
2018
|
Total net gains
|
|
(3,723)
|
|
|
(6,303)
|
|
|
(3,868)
|
|
Employee termination benefit costs
|
|
|
|
|
|
|
Harsco Environmental Segment
|
|
9,389
|
|
|
1,254
|
|
|
2,853
|
|
Clean Earth Segment
|
|
833
|
|
|
1,960
|
|
|
—
|
|
Harsco Rail Segment
|
|
639
|
|
|
2,393
|
|
|
704
|
|
Corporate
|
|
27
|
|
|
1,012
|
|
|
1,206
|
|
Total employee termination benefit costs
|
|
10,888
|
|
|
6,619
|
|
|
4,763
|
|
Other costs to exit activities
|
|
|
|
|
|
|
Harsco Environmental Segment
|
|
504
|
|
|
970
|
|
|
352
|
|
|
|
|
|
|
|
|
Harsco Rail Segment
|
|
160
|
|
|
3,042
|
|
|
—
|
|
Corporate
|
|
29
|
|
|
196
|
|
|
(182)
|
|
Total other costs to exit activities
|
|
693
|
|
|
4,208
|
|
|
170
|
|
Impaired asset write-downs
|
|
|
|
|
|
|
Harsco Environmental Segment
|
|
776
|
|
|
632
|
|
|
104
|
|
Harsco Rail Segment
|
|
—
|
|
|
141
|
|
|
—
|
|
|
|
|
|
|
|
|
Total impaired asset write-downs
|
|
776
|
|
|
773
|
|
|
104
|
|
Contingent consideration adjustments
|
|
|
|
|
|
|
Harsco Environmental Segment
|
|
—
|
|
|
(8,506)
|
|
|
(2,939)
|
|
Harsco Clean Earth Segment
|
|
112
|
|
|
825
|
|
|
—
|
|
Corporate
|
|
2,274
|
|
|
—
|
|
|
—
|
|
Total contingent consideration adjustments
|
|
2,386
|
|
|
(7,681)
|
|
|
(2,939)
|
|
Other income
|
|
(226)
|
|
|
(237)
|
|
|
(431)
|
|
Total other (income) expenses, net
|
|
$
|
10,794
|
|
|
$
|
(2,621)
|
|
|
$
|
(2,201)
|
|
Net Gains
Net gains result from the sales of redundant properties (primarily land, buildings and related equipment) and non-core assets. In 2020, gains related to assets sold principally in Latin America and Western Europe. In 2019, gains related to assets sold principally in Asia Pacific and North America; as well as a cumulative translation adjustment resulting from the substantial liquidation of a subsidiary in Western Europe. In 2018, gains related to assets sold principally in Eastern Europe, Western Europe and Asia Pacific.
Employee Termination Benefit Costs
Costs and the related liabilities associated with involuntary termination benefit costs associated with one-time benefit arrangements provided as part of an exit or disposal activity are recognized when a formal plan for reorganization is approved at the appropriate level of management and communicated to the affected employees. Additionally, costs associated with ongoing benefit arrangements, or in certain countries where statutory requirements dictate a minimum required benefit, are recognized when they are probable and estimable. The employee termination benefit costs in 2020 principally related to the Harsco Environmental Segment primarily in Western Europe, North America, Latin America and Asia Pacific. The employee termination benefits costs in 2019 principally related to the Harsco Rail Segment's consolidation of facilities in North America; the Harsco Clean Earth Segment primarily in North America; and the Harsco Environmental Segment primarily in Asia Pacific and Western Europe. The employee termination benefits costs in 2018 related principally to the Harsco Environmental Segment, primarily in Asia Pacific and Western Europe, and Corporate in North America.
Other Costs to Exit Activities
Costs associated with exit or disposal activities include costs to terminate a contract and other costs associated with exit or disposal activities. Costs to terminate a contract that is not a capital lease are recognized when an entity terminates the contract or when an entity ceases using the right conveyed by the contract. This includes the costs to terminate the contract before the end of its term or the costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity (e.g., lease run-out costs). Other costs associated with exit or disposal activities (e.g., costs to consolidate or close facilities and relocate equipment or employees) are recognized and measured at their fair value in the period in which the liability is incurred. In 2020, exit costs were incurred across several regions. In 2019, exit costs were incurred in the Harsco
Rail Segment, principally in North America due to the consolidation of facilities. In 2018, exit costs were incurred across several regions.
Impaired Asset Write-downs
Impaired asset write-downs are measured as the amount by which the carrying amount of assets exceeds their fair value. Fair value is estimated based upon the expected future realizable cash flows including anticipated selling prices. Non-cash impaired asset write-downs are included in, Other, net, on the Consolidated Statements of Cash Flows as adjustments to reconcile net income (loss) to net cash provided by operating activities. In 2020, impaired asset write-downs were incurred in the Harsco Environmental Segment across several regions. In 2019, impaired asset write-downs were incurred principally in the Harsco Environmental Segment, mostly in Western Europe.
Contingent Consideration Adjustments
The Company acquired Clean Earth in 2019. Included in liabilities acquired was a contingent liability resulting from a prior Clean Earth acquisition. In 2018, the Company acquired Altek, which is included in the Harsco Environmental Segment, and the purchase price included contingent consideration based on the performance of Altek through 2021. Each quarter until settlement of the related contingencies, the Company assesses the likelihood that the acquired businesses will achieve performance goals and the resulting fair value of the contingent consideration and any future adjustments (increases or decreases) are included in operating results. The Company's acquisition of Clean Earth included an agreement to reimburse the sellers for any usage of assumed net operating losses in a post-closing period for up to five years. In 2020, Corporate recorded an adjustment related to the expected reimbursement of these net operating losses.
19. Components of Accumulated Other Comprehensive Loss
AOCI is included on the Consolidated Statements of Stockholders' Equity. The components of AOCI, net of the effect of income taxes, and activity for the years ended December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of AOCI - Net of Tax
|
(In thousands)
|
|
Cumulative Foreign Exchange Translation Adjustments
|
|
Effective Portion of Derivatives Designated as Hedging Instruments
|
|
Cumulative Unrecognized Actuarial Losses on Pension Obligations
|
|
Unrealized Loss on Marketable Securities
|
|
Total
|
Balance at December 31, 2018
|
|
$
|
(159,810)
|
|
|
$
|
1,389
|
|
|
$
|
(408,655)
|
|
|
$
|
(31)
|
|
|
$
|
(567,107)
|
|
Adoption of new accounting standard
|
|
—
|
|
|
—
|
|
|
(21,429)
|
|
|
—
|
|
|
(21,429)
|
|
Balance at January 1, 2018
|
|
(159,810)
|
|
|
1,389
|
|
|
(430,084)
|
|
|
(31)
|
|
|
(588,536)
|
|
OCI before reclassifications
|
|
17,261
|
|
(a)
|
(7,050)
|
|
(b)
|
(32,274)
|
|
(c)
|
28
|
|
|
(22,035)
|
|
Amounts reclassified from AOCI, net of tax
|
|
(1,763)
|
|
|
1,944
|
|
|
21,796
|
|
|
—
|
|
|
21,977
|
|
Total OCI
|
|
15,498
|
|
|
(5,106)
|
|
|
(10,478)
|
|
|
28
|
|
|
(58)
|
|
Less: OCI attributable to noncontrolling interests
|
|
972
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
972
|
|
OCI attributable to Harsco Corporation
|
|
16,470
|
|
|
(5,106)
|
|
|
(10,478)
|
|
|
28
|
|
|
914
|
|
Balance at December 31, 2019
|
|
$
|
(143,340)
|
|
|
$
|
(3,717)
|
|
|
$
|
(440,562)
|
|
|
$
|
(3)
|
|
|
$
|
(587,622)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of AOCI - Net of Tax
|
(In thousands)
|
|
Cumulative Foreign Exchange Translation Adjustments
|
|
Effective Portion of Derivatives Designated as Hedging Instruments
|
|
Cumulative Unrecognized Actuarial Losses on Pension Obligations
|
|
Unrealized Loss on Marketable Securities
|
|
Total
|
Balance at December 31, 2019
|
|
$
|
(143,340)
|
|
|
$
|
(3,717)
|
|
|
$
|
(440,562)
|
|
|
$
|
(3)
|
|
|
$
|
(587,622)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
7,854
|
|
(a)
|
(3,709)
|
|
(b)
|
(96,684)
|
|
(c)
|
(6)
|
|
|
(92,545)
|
|
Amounts reclassified from AOCI, net of tax
|
|
12,906
|
|
|
1,586
|
|
|
22,746
|
|
|
—
|
|
|
37,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OCI
|
|
20,760
|
|
|
(2,123)
|
|
|
(73,938)
|
|
|
(6)
|
|
|
(55,307)
|
|
Less: OCI attributable to noncontrolling interests
|
|
(2,812)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,812)
|
|
OCI attributable to Harsco Corporation
|
|
17,948
|
|
|
(2,123)
|
|
|
(73,938)
|
|
|
(6)
|
|
|
(58,119)
|
|
Balance at December 31, 2020
|
|
$
|
(125,392)
|
|
|
$
|
(5,840)
|
|
|
$
|
(514,500)
|
|
|
$
|
(9)
|
|
|
$
|
(645,741)
|
|
(a) Principally foreign currency fluctuation.
(b) Principally net change from periodic revaluations.
(c) Principally changes due to annual actuarial remeasurements and foreign currency translation.
Amounts reclassified from AOCI for 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 2020
|
|
Year Ended December 31 2019
|
|
Affected Caption on the Consolidated Statements of Operations
|
(In thousands)
|
|
Amortization of defined benefit pension items (d):
|
|
|
|
|
|
|
Actuarial losses
|
|
$
|
19,623
|
|
|
$
|
19,806
|
|
|
Defined benefit pension income (expense)
|
|
|
|
|
|
|
|
Prior-service costs
|
|
511
|
|
|
326
|
|
|
Defined benefit pension income (expense)
|
Pension asset transfer - discontinued businesses
|
|
5,363
|
|
|
3,200
|
|
|
Gain on sale of discontinued businesses
|
Settlement/curtailment losses
|
|
(92)
|
|
|
19
|
|
|
Defined benefit pension income (expense)
|
Total before tax
|
|
25,405
|
|
|
23,351
|
|
|
|
Tax benefit
|
|
(2,659)
|
|
|
(1,555)
|
|
|
|
Total reclassification of defined benefit pension items, net of tax
|
|
$
|
22,746
|
|
|
$
|
21,796
|
|
|
|
Recognition of cumulative foreign currency translation adjustments:
|
Gain on substantial liquidation of subsidiaries (e)
|
|
$
|
12,906
|
|
|
$
|
(2,425)
|
|
|
Other (income) expenses, net
|
Loss on substantial liquidation of subsidiaries (e)
|
|
—
|
|
|
$
|
662
|
|
|
Gain on sale of discontinued business
|
Amortization of cash flow hedging instruments:
|
Foreign currency exchange forward contracts
|
|
$
|
(1,026)
|
|
|
$
|
(550)
|
|
|
Product revenues
|
Foreign currency exchange forward contracts
|
|
—
|
|
|
44
|
|
|
Cost of services and products sold
|
CCIRs
|
|
1,015
|
|
|
1,219
|
|
|
Interest expense
|
Interest rate swaps
|
|
2,589
|
|
|
(520)
|
|
|
Interest expense
|
Interest rate swaps
|
|
—
|
|
|
2,741
|
|
|
Income from discontinued businesses
|
Total before tax
|
|
2,578
|
|
|
2,934
|
|
|
|
Tax benefit
|
|
(992)
|
|
|
(990)
|
|
|
|
Total reclassification of cash flow hedging instruments
|
|
$
|
1,586
|
|
|
$
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) These AOCI components are included in the computation of NPPC. See Note 10, Employee Benefit Plans, for additional information.
(e) No tax impact.
Two-Year Summary of Quarterly Results (Unaudited)
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 (a)
|
|
Quarterly
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Revenues
|
|
$
|
398.8
|
|
|
$
|
447.3
|
|
|
$
|
509.4
|
|
|
$
|
508.3
|
|
|
Gross profit (b)
|
|
82.4
|
|
|
83.1
|
|
|
97.2
|
|
|
100.3
|
|
|
Net income (loss) attributable to Harsco Corporation
|
|
0.1
|
|
|
(10.6)
|
|
|
(9.6)
|
|
|
(6.3)
|
|
|
Basic loss per share attributable to Harsco Corporation common stockholders:
|
Continuing operations
|
|
$
|
(0.11)
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.07)
|
|
|
Discontinued operations (c)
|
|
0.11
|
|
|
—
|
|
|
(0.02)
|
|
|
(0.01)
|
|
|
Basic loss per share attributable to Harsco Corporation common stockholders
|
|
$
|
—
|
|
|
$
|
(0.13)
|
|
(d)
|
$
|
(0.12)
|
|
|
$
|
(0.08)
|
|
|
Diluted loss per share attributable to Harsco Corporation common stockholders:
|
Continuing operations
|
|
$
|
(0.11)
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.07)
|
|
|
Discontinued operations (c)
|
|
0.11
|
|
|
—
|
|
|
(0.02)
|
|
|
(0.01)
|
|
|
Diluted loss per share attributable to Harsco Corporation common stockholders
|
|
$
|
—
|
|
|
$
|
(0.13)
|
|
(d)
|
$
|
(0.12)
|
|
|
$
|
(0.08)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 (a)
|
|
Quarterly
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Revenues
|
|
$
|
329.9
|
|
|
$
|
350.9
|
|
|
$
|
423.2
|
|
|
$
|
399.8
|
|
|
Gross profit (b)
|
|
78.7
|
|
|
84.7
|
|
|
111.7
|
|
|
84.4
|
|
|
Net income attributable to Harsco Corporation
|
|
20.7
|
|
|
8.6
|
|
|
435.4
|
|
|
39.2
|
|
|
Basic income per share attributable to Harsco Corporation common stockholders:
|
Continuing operations
|
|
$
|
0.13
|
|
|
$
|
(0.04)
|
|
|
$
|
0.22
|
|
|
$
|
0.04
|
|
|
Discontinued operations (c)
|
|
0.13
|
|
|
0.14
|
|
|
5.24
|
|
|
0.46
|
|
|
Basic income per share attributable to Harsco Corporation common stockholders
|
|
$
|
0.26
|
|
|
$
|
0.11
|
|
(d)
|
$
|
5.46
|
|
|
$
|
0.50
|
|
|
Diluted income per share attributable to Harsco Corporation common stockholders:
|
Continuing operations
|
|
$
|
0.13
|
|
|
$
|
(0.04)
|
|
|
$
|
0.22
|
|
|
$
|
0.03
|
|
|
Discontinued operations (c)
|
|
0.13
|
|
|
0.14
|
|
|
5.15
|
|
|
0.45
|
|
|
Diluted income per share attributable to Harsco Corporation common stockholders
|
|
$
|
0.25
|
|
(d)
|
$
|
0.11
|
|
(d)
|
$
|
5.37
|
|
|
$
|
0.49
|
|
(d)
|
(a)Sum of the quarters may not equal the total year due to rounding.
(b)Gross profit is defined as Revenues less costs and expenses associated directly with or allocated to products sold or services rendered.
(c)Discontinued operations related principally to the Company's former Harsco Industrial Segment.
(d)Does not total due to rounding.