NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The Company has prepared these unaudited condensed consolidated financial statements in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the SEC. Accordingly, the unaudited condensed consolidated financial statements do not include all information and disclosure required by U.S. GAAP for annual financial statements. The December 31, 2020 Condensed Consolidated Balance Sheet information contained in this Quarterly Report on Form 10-Q was derived from the 2020 audited consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair statement are reflected in the unaudited condensed consolidated financial statements.
Restricted Cash
The Company had restricted cash of $3.0 million and $3.2 million at March 31, 2021 and December 31, 2020, respectively, and the restrictions are primarily related to collateral provided for certain guarantees of the Company's performance.
Impact of COVID-19
Beginning in early 2020, overall global economic conditions were significantly impacted by COVID-19. The Company has operated, since the onset of the pandemic, as a provider of certain essential services in the U.S. and other countries and overall business conditions have strengthened since the second quarter of 2020. And while the ultimate duration and impact of COVID-19 on the Company and its operations is presently unclear, the Company expects that business conditions will improve meaningfully in 2021 compared with 2020.
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 three months ended March 31, 2021. However, should the COVID-19 situation deteriorate, 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.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with current year classifications.
2. Recently Adopted and Recently Issued Accounting Standards
The following accounting standards have been adopted in 2021:
On January 1, 2021 the Company adopted changes issued by the FASB 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. These changes did not have a material impact on the Company's condensed consolidated financial statements.
The following accounting standards have been issued and become effective for the Company at a future date:
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 condensed 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 condensed consolidated financial statements.
3. Acquisitions and Dispositions
ESOL
On April 6, 2020 the Company completed the 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.
The fair value recorded for the assets acquired and liabilities assumed for ESOL is as follows:
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Final
|
(In millions)
|
|
April 6
2020
|
|
Measurement Period Adjustments
|
|
March 31
2021
|
Cash and cash equivalents
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
Trade accounts receivable
|
|
124.1
|
|
|
(1.5)
|
|
|
122.6
|
|
Inventory
|
|
5.0
|
|
|
—
|
|
|
5.0
|
|
Other current assets
|
|
0.7
|
|
|
(0.7)
|
|
|
—
|
|
Property, plant and equipment
|
|
105.3
|
|
|
(3.9)
|
|
|
101.4
|
|
Right-of-use assets
|
|
56.0
|
|
|
—
|
|
|
56.0
|
|
Goodwill
|
|
152.0
|
|
|
1.3
|
|
|
153.3
|
|
Intangible assets
|
|
161.0
|
|
|
—
|
|
|
161.0
|
|
Other assets
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Accounts payable
|
|
(48.6)
|
|
|
(1.5)
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|
|
(50.1)
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Accrued expenses
|
|
(17.5)
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|
|
(1.8)
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|
|
(19.3)
|
|
Current portion of operating lease liabilities
|
|
(16.6)
|
|
|
—
|
|
|
(16.6)
|
|
Other current liabilities
|
|
(6.4)
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|
|
(0.2)
|
|
|
(6.6)
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|
Environmental liabilities
|
|
(24.4)
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|
|
—
|
|
|
(24.4)
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|
Deferred income taxes
|
|
(15.5)
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|
|
(1.5)
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|
|
(17.0)
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|
Operating lease liabilities
|
|
(39.4)
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|
|
—
|
|
|
(39.4)
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|
Total identifiable net assets of ESOL
|
|
436.3
|
|
|
(9.8)
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|
|
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 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 valuation of identifiable intangible assets and amortization periods for ESOL and the non-compete agreement entered into by the Company upon acquisition of ESOL:
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Final
|
(Dollars in millions)
|
|
Weighted-Average Amortization Period
|
|
April 6
2020
|
|
Measurement Period Adjustments
|
|
March 31
2021
|
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.
ESOL contributed revenue of $134.2 million and operating income of $7.0 million for the three months ended March 31, 2021. The operations of ESOL have been combined and included as part of the Harsco Clean Earth Segment.
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.
Pro forma financial information
The pro forma information below gives effect to 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 date, 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 the adjustments necessary 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 three months ended March 31, 2020 on the acquisition related borrowings used to finance the acquisition and excludes certain directly attributable acquisition and integration costs. In addition, the historical ESOL results include $8.9 million for the three months ended March 31, 2020 of corporate expenses charged to ESOL from Stericycle.
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|
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Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In millions)
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2020
|
|
|
|
|
Pro forma revenues
|
|
$
|
529.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income attributed to Harsco Corporation (including discontinued operations) (a)
|
|
0.9
|
|
|
|
|
|
(a) Pro forma net income includes the after tax gain on the sale of IKG of approximately $9 million.
Harsco Industrial Segment
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 $18.5 million pre-tax gain on sale (or approximately $9 million after-tax). Together with the 2019 sales of AXC and PK, this completed the divestiture of the former Harsco Industrial Segment originally announced in May 2019. See Note 4, Accounts Receivable and Note Receivable, for additional information related to the note receivable.
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 three months ended March 31, 2020.
Certain key selected financial information included in net income (loss) from discontinued operations for the former Harsco Industrial Segment is as follows:
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|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In millions)
|
|
2021
|
|
2020
|
|
|
|
|
Amounts for the former Harsco Industrial Segment:
|
Total revenues
|
|
$
|
—
|
|
|
$
|
10,203
|
|
|
|
|
|
Cost of products sold
|
|
—
|
|
|
8,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued business
|
|
—
|
|
|
218
|
|
|
|
|
|
Additional amounts allocated to the former Harsco Industrial Segment:
|
Selling, general and administrative expenses (b)
|
|
$
|
1,046
|
|
|
$
|
1,266
|
|
|
|
|
|
|
|
|
|
|
|
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|
(b) 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.
4. Accounts Receivable and Note Receivable
Accounts receivable consist of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31
2021
|
|
December 31
2020
|
Trade accounts receivable
|
|
$
|
425,808
|
|
|
$
|
414,891
|
|
Less: Allowance for expected credit losses
|
|
(7,978)
|
|
|
(7,501)
|
|
|
|
|
|
|
Trade accounts receivable, net
|
|
$
|
417,830
|
|
|
$
|
407,390
|
|
|
|
|
|
|
Other receivables (a)
|
|
$
|
32,998
|
|
|
$
|
34,253
|
|
(a) Other receivables include employee receivables, insurance receivable, tax claims and refunds and other miscellaneous items not included in Trade accounts receivable, net.
The provision for doubtful accounts related to trade accounts receivable was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Provision for expected credit losses and doubtful accounts related to trade accounts receivable
|
|
$
|
1,157
|
|
|
$
|
219
|
|
|
|
|
|
At March 31, 2021 approximately $10.3 million of the Company's trade accounts receivable were past due by twelve months or more. Approximately $5.2 million of this amount is effectively reserved, and collection of the remaining balance is still ultimately expected. The increase from December 31, 2020 is due to the aging of certain customer balances in the Harsco Rail Segment, the balance of which the Company ultimately expects to collect.
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 March 31, 2021 and is included in the caption Other assets on the Condensed 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 March 31, 2021 the amortized cost of the note receivable was $36.2 million, compared with a fair value of $36.2 million.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31
2021
|
|
December 31
2020
|
Note receivable
|
|
$
|
36,229
|
|
|
$
|
35,806
|
|
5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31
2021
|
|
December 31
2020
|
Finished goods
|
|
$
|
10,467
|
|
|
$
|
8,505
|
|
Work-in-process
|
|
7,846
|
|
|
16,522
|
|
|
|
|
|
|
Raw materials and purchased parts
|
|
121,883
|
|
|
117,789
|
|
Stores and supplies
|
|
31,391
|
|
|
30,197
|
|
Total inventories
|
|
$
|
171,587
|
|
|
$
|
173,013
|
|
6. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31
2021
|
|
December 31
2020
|
Land
|
|
$
|
75,581
|
|
|
$
|
75,559
|
|
Land improvements
|
|
20,082
|
|
|
20,166
|
|
Buildings and improvements
|
|
248,744
|
|
|
249,954
|
|
Machinery and equipment
|
|
1,570,783
|
|
|
1,597,592
|
|
Uncompleted construction
|
|
50,872
|
|
|
42,185
|
|
Gross property, plant and equipment
|
|
1,966,062
|
|
|
1,985,456
|
|
Less: Accumulated depreciation
|
|
(1,310,600)
|
|
|
(1,317,247)
|
|
Property, plant and equipment, net
|
|
$
|
655,462
|
|
|
$
|
668,209
|
|
In the third quarter of 2020, a customer of the Harsco Environmental Segment in China ceased steel making operations at its steel mill site in order to relocate the operations to a new site, as a result of a government mandate to improve environmental conditions of the area. The Company will continue to provide services to the same customer at the new site. The net book value of the idled equipment associated with the previous location is approximately $19 million. The customer has entered into an agreement with the government where it will receive compensation for the losses the customer has incurred as a result of the forced shutdown. The Company has continued discussions with the customer regarding compensation, which are expected to be protracted. While the customer has initially indicated that they will not provide compensation, the Company disagrees with their interpretation and is evaluating its legal position in response. In addition, there may be other avenues of pursuing recovery, including seeking relief directly from the local government. At this point, considering the ongoing discussions with the customer, and other avenues, the Company believes it will recover the book value of the equipment and thus does not believe it has an asset impairment as of March 31, 2021. However, the Company will continue to evaluate changes in facts and circumstances and record any impairment charge when and if indicated.
7. Leases
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
Amortization expense
|
|
$
|
475
|
|
|
$
|
371
|
|
|
|
|
|
Interest on lease liabilities
|
|
102
|
|
|
52
|
|
|
|
|
|
Operating leases
|
|
8,372
|
|
|
4,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable and short-term lease expense
|
|
12,679
|
|
|
7,111
|
|
|
|
|
|
Sublease income
|
|
(49)
|
|
|
(50)
|
|
|
|
|
|
Total lease expense from continuing operations
|
|
$
|
21,579
|
|
|
$
|
11,768
|
|
|
|
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
(In thousands)
|
|
2021
|
|
2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Cash flows from operating activities - Operating leases
|
|
$
|
8,092
|
|
|
$
|
3,789
|
|
|
|
|
|
|
Cash flows from financing activities - Finance leases
|
|
497
|
|
|
324
|
|
ROU assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
$
|
5,702
|
|
|
$
|
2,217
|
|
Finance leases
|
|
430
|
|
|
1,234
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31
2021
|
|
December 31
2020
|
Operating Leases:
|
|
|
|
|
Operating lease ROU assets
|
|
$
|
89,772
|
|
|
$
|
96,849
|
|
Current portion of operating lease liabilities
|
|
23,632
|
|
|
24,862
|
|
Operating lease liabilities
|
|
64,029
|
|
|
69,860
|
|
|
|
|
|
|
Finance Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
8,362
|
|
|
$
|
8,434
|
|
Current maturities of long-term debt
|
|
1,598
|
|
|
1,683
|
|
Long-term debt
|
|
6,901
|
|
|
6,867
|
|
|
|
|
|
|
Supplemental additional information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
2021
|
|
December 31
2020
|
|
|
|
|
|
Other information:
|
|
|
|
|
Weighted average remaining lease term - Operating leases (in years)
|
|
7.61
|
|
8.00
|
Weighted average remaining lease term - Finance leases (in years)
|
|
8.02
|
|
8.20
|
Weighted average discount rate - Operating leases
|
|
5.9
|
%
|
|
6.1
|
%
|
Weighted average discount rate - Finance leases
|
|
5.1
|
%
|
|
5.1
|
%
|
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Operating
Leases
|
|
Finance
Leases
|
Year Ending December 31:
|
|
|
|
|
2021 (excluding the three months ended March 31, 2021)
|
|
$
|
22,007
|
|
|
$
|
1,522
|
|
2022
|
|
24,262
|
|
|
1,788
|
|
2023
|
|
18,957
|
|
|
1,577
|
|
2024
|
|
13,224
|
|
|
1,405
|
|
2025
|
|
8,255
|
|
|
797
|
|
After 2025
|
|
33,206
|
|
|
3,429
|
|
Total lease payments
|
|
119,911
|
|
|
10,518
|
|
Less: Imputed interest
|
|
(32,250)
|
|
|
(2,019)
|
|
Total
|
|
$
|
87,661
|
|
|
$
|
8,499
|
|
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 March 31, 2021, the Company had additional operating leases for property and equipment that have not yet commenced with estimated ROU assets and lease liabilities of $5.8 million to be recognized upon the anticipated lease commencements in the second quarter of 2021 There are no material residual value guarantees or material restrictive covenants in any of the Company's leases.
8. Goodwill and Other Intangible Assets
The following table reflects the changes in carrying amounts of goodwill by segment for the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Harsco Environmental Segment
|
|
Harsco
Clean Earth Segment
|
|
Harsco Rail
Segment
|
|
Consolidated
Totals
|
Balance at December 31, 2020
|
|
$
|
406,401
|
|
|
$
|
482,647
|
|
|
$
|
13,026
|
|
|
$
|
902,074
|
|
Changes to goodwill (a)
|
|
—
|
|
|
1,232
|
|
|
—
|
|
|
1,232
|
|
Foreign currency translation
|
|
(2,992)
|
|
|
—
|
|
|
—
|
|
|
(2,992)
|
|
Balance at March 31, 2021
|
|
$
|
403,409
|
|
|
$
|
483,879
|
|
|
$
|
13,026
|
|
|
$
|
900,314
|
|
(a) The changes to goodwill relate to the measurement period adjustments for the ESOL acquisition in the Harsco Clean Earth Segment. See Note 3, Acquisitions and Dispositions.
The Company tests for goodwill impairment annually, or more frequently if indicators of impairment exist, or if a decision is made to dispose of a business. The Company performs its annual goodwill impairment test as of October 1 and monitors for triggering events on an ongoing basis. The Company determined that, as of March 31, 2021, no interim goodwill impairment testing was necessary.
The Company has concluded that no triggering event occurred during the three months ended March 31, 2021. However, an economic downturn resulting from a deterioration of the COVID-19 situation could impact the Company's future projected cash flows used to estimate fair value, and/or result in a sustained decrease in the Company's share price, which could indicate an impairment.
Intangible assets, net, on the Company's Condensed Consolidated Balance Sheets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
(In thousands)
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Customer related
|
|
$
|
109,413
|
|
|
$
|
50,272
|
|
|
$
|
109,378
|
|
|
$
|
48,057
|
|
Permits
|
|
308,779
|
|
|
22,923
|
|
|
308,705
|
|
|
18,955
|
|
Technology related
|
|
40,492
|
|
|
10,684
|
|
|
40,274
|
|
|
9,654
|
|
Trade names
|
|
31,973
|
|
|
5,500
|
|
|
31,949
|
|
|
4,834
|
|
Air rights
|
|
26,139
|
|
|
1,239
|
|
|
26,139
|
|
|
1,044
|
|
Patents
|
|
173
|
|
|
127
|
|
|
192
|
|
|
139
|
|
Non-compete Agreement
|
|
2,500
|
|
|
625
|
|
|
2,500
|
|
|
469
|
|
Other
|
|
3,849
|
|
|
1,359
|
|
|
3,911
|
|
|
1,331
|
|
Total
|
|
$
|
523,318
|
|
|
$
|
92,729
|
|
|
$
|
523,048
|
|
|
$
|
84,483
|
|
Amortization expense for intangible assets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Amortization expense for intangible assets
|
|
$
|
8,216
|
|
|
$
|
5,918
|
|
|
|
|
|
The estimated amortization expense for the next five fiscal years based on current intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
Estimated amortization expense (b)
|
|
$
|
32,900
|
|
|
$
|
32,400
|
|
|
$
|
32,300
|
|
|
$
|
31,800
|
|
|
$
|
31,600
|
|
(b) These estimated amortization expense amounts do not reflect the potential effect of future foreign currency exchange fluctuations.
9. Debt and Credit Agreements
On March 10, 2021, the Company amended its Senior Secured Credit Facilities to, among other things, extend the maturity date of the Revolving Credit Facility to March 10, 2026, and to modify aspects of its total net leverage ratio covenant. The interest rate applicable to the Revolving Credit Facility bears interest at a rate, depending on total net leverage, ranging from 50 to 150 basis points over base rate or 150 to 250 basis points over LIBOR, subject to a zero floor.
Under the amended agreement, the net debt to consolidated adjusted EBITDA ratio covenant is 5.75 through the end of 2021 and then decreases quarterly until reaching 4.0 in March 2023.
In addition, the Company issued New Term Loans, as an additional tranche, under the Senior Secured Credit Facilities in an aggregate principal amount of $500 million. The New Term Loans bear interest at a rate per annum of 1.25% over base rate, subject to a zero floor, or 2.25% over LIBOR, subject to a 0.50% floor. The New Term Loans are subject to quarterly amortization of principal of 0.25%, beginning September 30, 2021. The proceeds of the New Term Loans were used to repay in full the outstanding Term Loan A and Term Loan B under the Senior Secured Credit Facilities, which were due on June 28, 2024 and December 8, 2024, respectively. The New Term Loans mature on March 10, 2028, or earlier, on the date that is 91 days prior to the maturity date of the Company’s 5.75% Senior Notes due 2027 if such Senior Notes are outstanding or have not been refinanced at such time.
Total expenses of $5.3 million, including a write-off of $2.7 million of previously recorded deferred financing costs, were recognized during the three months ended March 31, 2021 related to the amended Senior Secured Credit Facilities in the caption Unused debt commitment fees, amendment fees and loss on extinguishment of debt on the Condensed Consolidated Statements of Operations. The Company has capitalized fees of $7.8 million related to the amendment of the Senior Secured Credit Facilities, of which $6.5 million were paid as of March 31, 2021.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31
2021
|
|
December 31
2020
|
|
|
|
|
|
Senior Secured Credit Facilities:
|
|
|
|
|
New Term Loan
|
|
$
|
500,000
|
|
|
$
|
—
|
|
Term Loan A
|
|
—
|
|
|
280,000
|
|
Term Loan B
|
|
—
|
|
|
218,188
|
|
Revolving Credit Facility
|
|
339,000
|
|
|
281,000
|
|
5.75% Notes, due July 31, 2027
|
|
500,000
|
|
|
500,000
|
|
Other financing payable (including finance leases) in varying amounts
|
|
22,221
|
|
|
21,344
|
|
Total debt obligations
|
|
1,361,221
|
|
|
1,300,532
|
|
Less: deferred financing costs
|
|
(20,176)
|
|
|
(15,767)
|
|
Total debt obligations, net of deferred financing costs
|
|
1,341,045
|
|
|
1,284,765
|
|
Less: current maturities of long-term debt
|
|
(6,720)
|
|
|
(13,576)
|
|
Long-term debt
|
|
$
|
1,334,325
|
|
|
$
|
1,271,189
|
|
10. Employee Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
Defined Benefit Pension Plans Net Periodic Pension Cost (Benefit)
|
|
U.S. Plans
|
|
International Plans
|
(In thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
493
|
|
|
$
|
429
|
|
Interest costs
|
|
1,203
|
|
|
1,845
|
|
|
3,193
|
|
|
4,395
|
|
Expected return on plan assets
|
|
(3,050)
|
|
|
(2,842)
|
|
|
(11,367)
|
|
|
(10,190)
|
|
Recognized prior service costs
|
|
—
|
|
|
—
|
|
|
127
|
|
|
107
|
|
Recognized loss
|
|
1,385
|
|
|
1,425
|
|
|
4,563
|
|
|
3,655
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans net periodic pension cost (benefit)
|
|
$
|
(462)
|
|
|
$
|
428
|
|
|
$
|
(2,991)
|
|
|
$
|
(1,604)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Company Contributions
|
|
March 31
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Defined benefit pension plans (U.S.)
|
|
$
|
2,866
|
|
|
$
|
2,027
|
|
|
|
|
|
Defined benefit pension plans (International)
|
|
12,622
|
|
|
10,060
|
|
|
|
|
|
Multiemployer pension plans
|
|
440
|
|
|
409
|
|
|
|
|
|
Defined contribution pension plans
|
|
3,413
|
|
|
3,169
|
|
|
|
|
|
The Company's estimate of expected contributions to be paid during the remainder of 2021 for the U.S. and international defined benefit pension plans is $1.4 million and $12.7 million, respectively.
11. Income Taxes
Income tax expense from continuing operations for the three months ended March 31, 2021 was $4.2 million compared with an income tax benefit from continuing operations of $0.7 million for the three months ended March 31, 2020. The change in the income tax expense for the three months ended March 31, 2021 compared with the income tax benefit for the three months ended March 31, 2020 is the result of higher taxable income, primarily due to an improvement in operations and acquisition and integration costs in 2020 not recurring in 2021, partially offset by debt refinancing expenses in 2021.
An income tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, based on technical merits, including resolutions of any related appeals or litigation processes. The reserve for uncertain tax positions at March 31, 2021 was $4.3 million, including interest and penalties. Within the next twelve months, it is reasonably possible that $0.6 million unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.
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)
|
|
March 31
2021
|
|
December 31
2020
|
Current portion of environmental liabilities (a)
|
|
$
|
6,791
|
|
|
$
|
6,933
|
|
Long-term environmental liabilities
|
|
29,044
|
|
|
29,424
|
|
Total environmental liabilities
|
|
$
|
35,835
|
|
|
$
|
36,357
|
|
(a) The current portion of environmental liabilities is included in the caption Other current liabilities on the Company's Condensed 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 eighteen (18) 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 during the second quarter of 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 $900 per day) and CSN 20,000 Brazilian reais per day (or approximately $3,500 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 $4,300 per day) and raising the fines assessed to CSN to 100,000 Brazilian reais per day (or approximately $17,300 per day). The Court also assessed an additional fine of 10,000,000 Brazilian reais (or approximately $1,732,000) 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 March 31, 2021 the principal amount of the tax assessment from the SPRA with regard to this case is approximately $1.1 million, with penalty, interest and fees assessed to date increasing such amount by an additional $14.7 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 $1.1 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 $6 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 $4.4 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 $1.0 million, with penalty and interest assessed through that date increasing such amount by an additional $3.3 million. On December 6, 2018 the administrative tribunal reduced the applicable penalties to $0.7 million. After calculating the interest
accrued on the current penalty, the Company estimates that the current overall liability for this case to be approximately $5.0 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 condensed 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 March 31, 2021 and December 31, 2020 the Company has established reserves of $3.7 million and $4.3 million, respectively, on the Company's Condensed 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 March 31, 2021 there were approximately 17,192 pending asbestos personal injury actions filed against the Company. Of those actions, approximately 16,602 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 471 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 March 31, 2021 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 53 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 March 31, 2021 the Company has obtained dismissal in approximately 28,324 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 condensed 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 Other receivables on the Company's Condensed Consolidated Balance Sheets. See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information on Accrued insurance and loss reserves.
13. Reconciliation of Basic and Diluted Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In thousands, except per share amounts)
|
|
2021
|
|
2020
|
|
|
|
|
Income (loss) from continuing operations attributable to Harsco Corporation common stockholders
|
|
$
|
1,462
|
|
|
$
|
(8,782)
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic
|
|
79,088
|
|
|
78,761
|
|
|
|
|
|
Dilutive effect of stock-based compensation
|
|
927
|
|
|
—
|
|
|
|
|
|
Weighted-average shares outstanding - diluted
|
|
80,015
|
|
|
78,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per common share, attributable to Harsco Corporation common stockholders:
|
Basic
|
|
$
|
0.02
|
|
|
$
|
(0.11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.11)
|
|
|
|
|
|
The following average outstanding stock-based compensation units were not included in the computation of diluted earnings per share because the effect was either antidilutive or the market conditions for the performance share units were not met:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Restricted stock units
|
|
—
|
|
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock appreciation rights
|
|
847
|
|
|
2,643
|
|
|
|
|
|
Performance share units
|
|
1,013
|
|
|
940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Derivative Instruments, Hedging Activities and Fair Value
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
Company's Condensed 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 risks, 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.
The fair value of outstanding derivative contracts recorded as assets and liabilities on the Company's Condensed 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
|
March 31, 2021
|
|
|
|
|
|
|
|
|
Asset derivatives (Level 2):
|
|
|
|
|
|
|
|
|
Foreign currency exchange forward contracts
|
|
Other current assets
|
|
$
|
502
|
|
|
$
|
6,995
|
|
|
$
|
7,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
502
|
|
|
$
|
6,995
|
|
|
$
|
7,497
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives (Level 2):
|
Foreign currency exchange forward contracts
|
|
Other current liabilities
|
|
$
|
786
|
|
|
$
|
2,144
|
|
|
$
|
2,930
|
|
Interest rate swaps
|
|
Other current liabilities
|
|
3,651
|
|
|
—
|
|
|
3,651
|
|
Interest rate swaps
|
|
Other liabilities
|
|
3,151
|
|
|
—
|
|
|
3,151
|
|
Total
|
|
|
|
$
|
7,588
|
|
|
$
|
2,144
|
|
|
$
|
9,732
|
|
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
|
|
All of the Company's derivatives are recorded on the Condensed 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, if offset, would have resulted in a $1.6 million net liability at March 31, 2021 and at December 31, 2020 would not have resulted in a net asset or liability.
The effect of derivative instruments on the Company's Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income (Loss) was as follows:
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
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
March 31
|
|
|
March 31
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
Foreign currency exchange forward contracts
|
|
$
|
(1)
|
|
|
$
|
2,037
|
|
|
Product revenues
|
|
$
|
(50)
|
|
|
$
|
(1,404)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
19
|
|
|
(3,578)
|
|
|
Interest expense
|
|
865
|
|
|
378
|
|
CCIRs (a)
|
|
—
|
|
|
58
|
|
|
Interest expense
|
|
—
|
|
|
305
|
|
|
|
$
|
18
|
|
|
$
|
(1,483)
|
|
|
|
|
$
|
815
|
|
|
$
|
(721)
|
|
(a) Amounts represent changes in foreign currency translation related to balances in AOCI.
The location and amount of gain (loss) recognized on the Company's Condensed Consolidated Statements of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
|
2021
|
|
|
|
2020
|
(in thousands)
|
|
Product Revenues
|
|
|
|
Interest Expense
|
|
|
|
Product Revenues
|
|
|
|
Interest Expense
|
|
|
Total amounts of line items presented in the Condensed Consolidated Statement of Operations in which the effects of cash flow hedges are recorded
|
|
$
|
104,406
|
|
|
|
|
$
|
(16,864)
|
|
|
|
|
$
|
107,252
|
|
|
|
|
$
|
(12,649)
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
|
|
(865)
|
|
|
|
|
—
|
|
|
|
|
(378)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (loss) reclassified from AOCI into income
|
|
50
|
|
|
|
|
—
|
|
|
|
|
1,404
|
|
|
|
|
—
|
|
|
|
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value
|
|
28
|
|
|
|
|
—
|
|
|
|
|
183
|
|
|
|
|
—
|
|
|
|
Amount excluded from the effectiveness testing recognized in earnings based on an amortization approach
|
|
1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
CCIRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss reclassified from AOCI into income
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(305)
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Income on Derivatives
|
|
Amount of Gain (Loss) Recognized in Income on Derivatives (b)
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31
|
|
|
(In thousands)
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange forward contracts
|
|
Cost of services and products sold
|
|
$
|
4,744
|
|
|
$
|
5,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) These gains (losses) offset amounts recognized in cost of services 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 consolidated 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 March 31, 2021 and December 31, 2020 the notional amounts of foreign currency exchange forward contracts were $403.6 million and $460.5 million, respectively. These contracts are primarily denominated in British Pound Sterling and Euros and mature through October 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 $3.3 million for the three months ended March 31, 2021 and pre-tax net losses of $9.7 million for the three months ended March 31, 2020 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.
At March 31, 2021, the Company has entered into a series of interest rate swaps that are in effect through 2022 and have the effect of converting $200.0 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.
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 on the Company's Condensed Consolidated Statements of Operations and offset currency fluctuation effects on the debt principal. The Company had no outstanding CCIRs at March 31, 2021.
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 March 31, 2021 and December 31, 2020 the total fair value of long-term debt (excluding deferred financing costs), including current maturities, was $1,364.7 million and $1,324.9 million, respectively, compared with a carrying value of $1,361.2 million and $1,300.5 million, respectively. Fair values for debt are based on 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.
15. Review of Operations by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Revenues From Continuing Operations (a)
|
|
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
257,986
|
|
|
$
|
241,559
|
|
|
|
|
|
Harsco Clean Earth
|
|
189,279
|
|
|
78,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harsco Rail
|
|
81,590
|
|
|
78,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues From Continuing Operations
|
|
$
|
528,855
|
|
|
$
|
398,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) From Continuing Operations (a)
|
Harsco Environmental
|
|
$
|
25,935
|
|
|
$
|
10,520
|
|
|
|
|
|
Harsco Clean Earth
|
|
3,178
|
|
|
4,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harsco Rail
|
|
4,664
|
|
|
6,472
|
|
|
|
|
|
Corporate
|
|
(8,953)
|
|
|
(18,356)
|
|
|
|
|
|
Total Operating Income From Continuing Operations
|
|
$
|
24,824
|
|
|
$
|
2,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation (a)
|
|
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
25,717
|
|
|
$
|
25,375
|
|
|
|
|
|
Harsco Clean Earth
|
|
5,337
|
|
|
2,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harsco Rail
|
|
1,211
|
|
|
1,215
|
|
|
|
|
|
Corporate
|
|
483
|
|
|
513
|
|
|
|
|
|
Total Depreciation
|
|
$
|
32,748
|
|
|
$
|
29,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization (a)
|
|
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
2,048
|
|
|
$
|
1,936
|
|
|
|
|
|
Harsco Clean Earth
|
|
6,083
|
|
|
3,898
|
|
|
|
|
|
Harsco Rail
|
|
85
|
|
|
84
|
|
|
|
|
|
Corporate (b)
|
|
751
|
|
|
639
|
|
|
|
|
|
Total Amortization
|
|
$
|
8,967
|
|
|
$
|
6,557
|
|
|
|
|
|
Capital Expenditures (a)
|
|
|
|
|
|
|
|
|
Harsco Environmental
|
|
$
|
24,419
|
|
|
$
|
24,748
|
|
|
|
|
|
Harsco Clean Earth
|
|
2,530
|
|
|
1,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harsco Rail
|
|
365
|
|
|
1,539
|
|
|
|
|
|
Corporate
|
|
68
|
|
|
58
|
|
|
|
|
|
Total Capital Expenditures
|
|
$
|
27,382
|
|
|
$
|
27,787
|
|
|
|
|
|
(a) The Company's acquisition of ESOL closed on April 6, 2020. See Note 3, Acquisitions and Dispositions, for additional details.
(b) Amortization expense on Corporate relates to the amortization of deferred financing costs.
Reconciliation of Segment Operating Income to Income (Loss) From Continuing Operations Before Income Taxes and Equity Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Segment operating income
|
|
$
|
33,777
|
|
|
$
|
21,237
|
|
|
|
|
|
General Corporate expense
|
|
(8,953)
|
|
|
(18,356)
|
|
|
|
|
|
Operating income from continuing operations
|
|
24,824
|
|
|
2,881
|
|
|
|
|
|
Interest income
|
|
585
|
|
|
193
|
|
|
|
|
|
Interest expense
|
|
(16,864)
|
|
|
(12,649)
|
|
|
|
|
|
Unused debt commitment fees, amendment fees and loss on extinguishment of debt
|
|
(5,258)
|
|
|
(488)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension income
|
|
3,953
|
|
|
1,589
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and equity income
|
|
$
|
7,240
|
|
|
$
|
(8,474)
|
|
|
|
|
|
16. 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.
A summary of the Company's revenues by primary geographical markets as well as by key product and service groups is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2021
|
(In thousands)
|
|
Harsco Environmental Segment
|
|
Harsco
Clean Earth
Segment
|
|
Harsco
Rail
Segment
|
|
|
|
Consolidated Totals
|
Primary Geographical Markets (a) (b):
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
67,181
|
|
|
$
|
189,279
|
|
|
$
|
58,261
|
|
|
|
|
$
|
314,721
|
|
Western Europe
|
|
112,171
|
|
|
—
|
|
|
16,633
|
|
|
|
|
128,804
|
|
Latin America (c)
|
|
30,653
|
|
|
—
|
|
|
560
|
|
|
|
|
31,213
|
|
Asia-Pacific
|
|
23,370
|
|
|
—
|
|
|
6,136
|
|
|
|
|
29,506
|
|
Middle East and Africa
|
|
20,121
|
|
|
—
|
|
|
—
|
|
|
|
|
20,121
|
|
Eastern Europe
|
|
4,490
|
|
|
—
|
|
|
—
|
|
|
|
|
4,490
|
|
Total Revenues
|
|
$
|
257,986
|
|
|
$
|
189,279
|
|
|
$
|
81,590
|
|
|
|
|
$
|
528,855
|
|
Key Product and Service Groups (a):
|
|
|
|
|
|
|
|
|
|
|
Environmental services related to resource recovery for metals manufacturing and related logistical services
|
|
$
|
225,060
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
225,060
|
|
Applied products
|
|
29,785
|
|
|
—
|
|
|
—
|
|
|
|
|
29,785
|
|
Environmental systems for aluminum dross and scrap processing
|
|
3,141
|
|
|
—
|
|
|
—
|
|
|
|
|
3,141
|
|
Railway track maintenance equipment
|
|
—
|
|
|
—
|
|
|
46,440
|
|
|
|
|
46,440
|
|
After market parts and services; safety and diagnostic technology
|
|
—
|
|
|
—
|
|
|
26,769
|
|
|
|
|
26,769
|
|
Railway contracting services
|
|
—
|
|
|
—
|
|
|
8,381
|
|
|
|
|
8,381
|
|
Waste processing, recycling, reuse and transportation solutions
|
|
—
|
|
|
189,279
|
|
|
—
|
|
|
|
|
189,279
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
257,986
|
|
|
$
|
189,279
|
|
|
$
|
81,590
|
|
|
|
|
$
|
528,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2020
|
(In thousands)
|
|
Harsco Environmental Segment
|
|
Harsco
Clean Earth
Segment
|
|
Harsco
Rail
Segment
|
|
|
|
Consolidated Totals
|
Primary Geographical Markets (a) (b):
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
69,881
|
|
|
$
|
78,812
|
|
|
$
|
53,773
|
|
|
|
|
$
|
202,466
|
|
Western Europe
|
|
96,317
|
|
|
—
|
|
|
18,164
|
|
|
|
|
114,481
|
|
Latin America (c)
|
|
33,260
|
|
|
—
|
|
|
665
|
|
|
|
|
33,925
|
|
Asia-Pacific
|
|
21,996
|
|
|
—
|
|
|
5,868
|
|
|
|
|
27,864
|
|
Middle East and Africa
|
|
15,889
|
|
|
—
|
|
|
—
|
|
|
|
|
15,889
|
|
Eastern Europe
|
|
4,216
|
|
|
—
|
|
|
—
|
|
|
|
|
4,216
|
|
Total Revenues
|
|
$
|
241,559
|
|
|
$
|
78,812
|
|
|
$
|
78,470
|
|
|
|
|
$
|
398,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Product and Service Groups (a):
|
|
|
|
|
|
|
|
|
|
|
Environmental services related to resource recovery for metals manufacturing and related logistical services
|
|
$
|
207,596
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
207,596
|
|
Applied products
|
|
30,262
|
|
|
—
|
|
|
—
|
|
|
|
|
30,262
|
|
Environmental systems for aluminum dross and scrap processing
|
|
3,701
|
|
|
—
|
|
|
—
|
|
|
|
|
3,701
|
|
Railway track maintenance equipment
|
|
—
|
|
|
—
|
|
|
42,615
|
|
|
|
|
42,615
|
|
After market parts and services; safety and diagnostic technology
|
|
—
|
|
|
—
|
|
|
31,200
|
|
|
|
|
31,200
|
|
Railway contracting services
|
|
—
|
|
|
—
|
|
|
4,655
|
|
|
|
|
4,655
|
|
Waste processing, recycling, reuse and transportation solutions
|
|
—
|
|
|
78,812
|
|
|
—
|
|
|
|
|
78,812
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
241,559
|
|
|
$
|
78,812
|
|
|
$
|
78,470
|
|
|
|
|
$
|
398,841
|
|
(a) The Company's acquisition of ESOL closed on April 6, 2020. The results are included in the Harsco Clean Earth Segment. See Note 3, Acquisitions 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 Condensed 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 Condensed Consolidated Balance Sheets. Non-current contract assets are included in Other assets on the Condensed Consolidated Balance Sheets. Contract assets are transferred to Trade accounts receivable, net, when the 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 $79.1 million and $60.1 million at March 31, 2021 and December 31, 2020, respectively. The increase is due principally to additional contract assets recognized in excess of the transfer of contract assets to accounts receivable, primarily in the Harsco Rail Segment. The Company had Advances on contracts totaling $72.5 million and $84.9 million at March 31, 2021 and December 31, 2020, respectively. The decrease is due principally to the recognition of revenue on previously received Advances on contracts in excess of the receipt of new advances on contracts during the period, primarily in the Harsco Rail Segment. During the three months ended March 31, 2021 and 2020, the Company recognized approximately $17 million and $18 million, respectively, of revenue related to amounts previously included in Advances on contracts.
At March 31, 2021 the Harsco Environmental Segment had remaining, fixed, unsatisfied performance obligations where the expected contract duration exceeds one year totaling $74.7 million. Of this amount, $17.9 million is expected to be fulfilled by March 31, 2022, $16.7 million by March 31, 2023, $15.5 million by March 31, 2024, $15.2 million by March 31, 2025 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 March 31, 2021 the Harsco Rail Segment had remaining, fixed, unsatisfied performance obligations where the expected contract duration exceeds one year totaling $299.5 million. Of this amount, $121.3 million is expected to be fulfilled by March 31, 2022, $102.8 million by March 31, 2023, $52.6 million by March 31, 2024, $14.5 million by March 31, 2025 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 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 March 31, 2021 and December 31, 2020 the remaining estimated forward loss provision of $3.8 million and $4.4 million, respectively, is included in the caption Other current liabilities on the Condensed 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 $5.2 million and $10.1 million of revenues for the contracts with SBB on an over time basis, utilizing a cost-to-cost method for the three months ended March 31, 2021 and 2020, respectively. The Company has substantially completed the first contract and is approximately 74% complete on the second contract with SBB as of March 31, 2021.
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.
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.
17. Other (Income) Expenses, Net
The major components of this Condensed Consolidated Statements of Operations caption were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination benefit costs
|
|
$
|
589
|
|
|
$
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other costs to exit activities
|
|
238
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired asset write-downs
|
|
22
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains
|
|
(1,693)
|
|
|
(19)
|
|
|
|
|
|
Other
|
|
(68)
|
|
|
52
|
|
|
|
|
|
Other (income) expenses, net
|
|
$
|
(912)
|
|
|
$
|
5,733
|
|
|
|
|
|
18. Components of Accumulated Other Comprehensive Loss
AOCI is included on the Condensed Consolidated Statements of Stockholders' Equity. The components of AOCI, net of the effect of income taxes, and activity for the three months ended March 31, 2020 and 2021 was 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 Gain (Loss) on Marketable Securities
|
|
Total
|
Balance at December 31, 2019
|
|
$
|
(143,340)
|
|
|
$
|
(3,717)
|
|
|
$
|
(440,562)
|
|
|
$
|
(3)
|
|
|
$
|
(587,622)
|
|
|
|
|
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
(71,472)
|
|
(a)
|
(1,042)
|
|
(b)
|
21,429
|
|
(a)
|
(18)
|
|
|
(51,103)
|
|
Amounts reclassified from AOCI, net of tax
|
|
12,906
|
|
|
(645)
|
|
|
8,840
|
|
|
—
|
|
|
21,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OCI
|
|
(58,566)
|
|
|
(1,687)
|
|
|
30,269
|
|
|
(18)
|
|
|
(30,002)
|
|
OCI attributable to noncontrolling interests
|
|
1,148
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,148
|
|
OCI attributable to Harsco Corporation
|
|
(57,418)
|
|
|
(1,687)
|
|
|
30,269
|
|
|
(18)
|
|
|
(28,854)
|
|
Balance at March 31, 2020
|
|
$
|
(200,758)
|
|
|
$
|
(5,404)
|
|
|
$
|
(410,293)
|
|
|
$
|
(21)
|
|
|
$
|
(616,476)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Gain (Loss) on Marketable Securities
|
|
Total
|
Balance at December 31, 2020
|
|
$
|
(125,392)
|
|
|
$
|
(5,840)
|
|
|
$
|
(514,500)
|
|
|
$
|
(9)
|
|
|
$
|
(645,741)
|
|
|
|
|
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
(3,296)
|
|
(a)
|
119
|
|
(b)
|
(1,897)
|
|
(a)
|
17
|
|
|
(5,057)
|
|
Amounts reclassified from AOCI, net of tax
|
|
—
|
|
|
570
|
|
|
5,716
|
|
|
—
|
|
|
6,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OCI
|
|
(3,296)
|
|
|
689
|
|
|
3,819
|
|
|
17
|
|
|
1,229
|
|
OCI attributable to noncontrolling interests
|
|
1,066
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,066
|
|
OCI attributable to Harsco Corporation
|
|
(2,230)
|
|
|
689
|
|
|
3,819
|
|
|
17
|
|
|
2,295
|
|
Balance at March 31, 2021
|
|
$
|
(127,622)
|
|
|
$
|
(5,151)
|
|
|
$
|
(510,681)
|
|
|
$
|
8
|
|
|
$
|
(643,446)
|
|
(a) Principally foreign currency fluctuation.
(b) Net change from periodic revaluations.
Amounts reclassified from AOCI were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
|
|
|
|
Location on the Condensed Consolidated Statements of Operations
|
|
March 31
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Recognition of cumulative foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Loss on substantial liquidation of subsidiaries (c)
|
|
$
|
—
|
|
|
$
|
12,906
|
|
|
|
|
|
|
Gain on sale of discontinued businesses
|
Amortization of cash flow hedging instruments:
|
Foreign currency exchange forward contracts
|
|
$
|
(50)
|
|
|
$
|
(1,404)
|
|
|
|
|
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCIRs
|
|
—
|
|
|
305
|
|
|
|
|
|
|
Interest expense
|
Interest rate swaps
|
|
865
|
|
|
378
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
Total before taxes
|
|
815
|
|
|
(721)
|
|
|
|
|
|
|
|
Income taxes
|
|
(245)
|
|
|
76
|
|
|
|
|
|
|
|
Total reclassification of cash flow hedging instruments, net of tax
|
|
$
|
570
|
|
|
$
|
(645)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items (d):
|
Actuarial losses
|
|
$
|
5,948
|
|
|
$
|
5,080
|
|
|
|
|
|
|
Defined benefit pension income
|
Prior service costs
|
|
127
|
|
|
107
|
|
|
|
|
|
|
Defined benefit pension income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability transfer - discontinued business
|
|
—
|
|
|
5,363
|
|
|
|
|
|
|
Gain on sale of discontinued businesses
|
Total before taxes
|
|
6,075
|
|
|
10,550
|
|
|
|
|
|
|
|
Income taxes
|
|
(359)
|
|
|
(1,710)
|
|
|
|
|
|
|
|
Total reclassification of defined benefit pension items, net of tax
|
|
$
|
5,716
|
|
|
$
|
8,840
|
|
|
|
|
|
|
|
(c) No tax impact.
(d) These AOCI components are included in the computation of net periodic pension costs. See Note 10, Employee Benefit Plans, for additional details.