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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to          
Commission File Number 001-03970
hsc-20220930_g1.jpg
HARSCO CORPORATION
(Exact name of registrant as specified in its charter) 
Delaware 23-1483991
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
350 Poplar Church Road, Camp Hill, Pennsylvania 17011
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code  717-763-7064 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, par value $1.25 per share HSC New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ☒  NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 ☒
 Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ☐  NO ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class  
Outstanding at October 31, 2022
Common stock, par value $1.25 per share   79,474,631

HARSCO CORPORATION
FORM 10-Q
INDEX
 
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2
Glossary of Defined Terms

Unless the context requires otherwise, "Harsco," the "Company," "we," "our," or "us" refers to Harsco Corporation on a consolidated basis. The Company also uses several other terms in this Quarterly Report on Form 10-Q, which are further defined below:

Term Description
AOCI Accumulated Other Comprehensive Income (Loss)
CERCLA Comprehensive Environmental Response, Compensation, and Liability Act of 1980
Consolidated Adjusted EBITDA EBITDA as calculated in accordance with the Company's Credit Agreement
COVID-19 The COVID-19 coronavirus pandemic
Credit Agreement Credit Agreement governing the Senior Secured Credit Facilities
DEA United States Drug Enforcement Agency
Deutsche Bahn National railway company in Germany
DTSC California Department of Toxic Substances Control
EBITDA Earnings before interest, tax, depreciation and amortization
ESOL Stericycle Environmental Solutions business
FASB Financial Accounting Standards Board
ICMS Type of value-added tax in Brazil
IKG The former Harsco Industrial IKG business
ISDA International Swaps and Derivatives Association
LIBOR London Interbank Offered Rates
Network Rail Infrastructure manager for most of the railway in the U.K.
New Term Loan $500 million term loan raised in March 2021 under the Senior Secured Credit Facilities, maturing on March 10, 2028
OCI Other Comprehensive Income (Loss)
PA DEP Pennsylvania Department of Environmental Protection
Revolving Credit Facility Multi-year revolving credit facility under the Senior Secured Credit Facility, with a facility limit of $700 million
ROU Right of use
SBB Federal railway system of Switzerland
SCE Supreme Council for Environment in Bahrain
SEC Securities and Exchange Commission
Senior Notes 5.75% Notes due July 31, 2027
Senior Secured Credit Facilities Primary source of borrowings comprised of the Revolving Credit Facility and the New Term Loan
SPRA State Revenue Authorities from the State of São Paulo, Brazil
TSDF Treatment, storage, and disposal facility permits issued under the Resource Conservation and Recovery Act
U.S. GAAP Accounting principles generally accepted in the U.S.
3
PART I — FINANCIAL INFORMATION
ITEM 1.      FINANCIAL STATEMENTS

HARSCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands) September 30
2022		 December 31
2021
ASSETS    
Current assets:    
Cash and cash equivalents $ 81,740  $ 82,908 
Restricted cash 3,297  4,220 
Trade accounts receivable, net 269,890  377,881 
Other receivables 26,307  33,059 
Inventories 80,714  70,493 
Prepaid expenses 33,592  31,065 
Current portion of assets held-for-sale 261,888  265,413 
Other current assets 39,617  9,934 
Total current assets 797,045  874,973 
Property, plant and equipment, net 629,895  653,913 
Right-of-use assets, net 104,227  101,576 
Goodwill 744,780  883,109 
Intangible assets, net 372,002  402,801 
Deferred income tax assets 16,681  17,883 
Assets held-for-sale 63,864  71,234 
Other assets 42,901  48,419 
Total assets $ 2,771,395  $ 3,053,908 
LIABILITIES    
Current liabilities:    
Short-term borrowings $ 9,463  $ 7,748 
Current maturities of long-term debt 16,784  10,226 
Accounts payable 203,900  186,126 
Accrued compensation 38,041  48,165 
Income taxes payable 4,271  6,378 
Current portion of operating lease liabilities 25,989  25,590 
Current portion of liabilities of assets held-for-sale 157,231  161,999 
Other current liabilities 136,019  155,159 
Total current liabilities 591,698  601,391 
Long-term debt 1,314,918  1,359,446 
Retirement plan liabilities 49,286  93,693 
Operating lease liabilities 77,304  74,571 
Liabilities of assets held-for-sale 7,437  8,492 
Environmental liabilities 26,678  28,435 
Deferred tax liabilities 32,497  33,826 
Other liabilities 45,442  48,284 
Total liabilities 2,145,260  2,248,138 
COMMITMENTS AND CONTINGENCIES
HARSCO CORPORATION STOCKHOLDERS’ EQUITY    
Common stock 145,390  144,883 
Additional paid-in capital 223,172  215,528 
Accumulated other comprehensive loss (596,764) (560,139)
Retained earnings 1,651,159  1,794,510 
Treasury stock (848,439) (846,622)
Total Harsco Corporation stockholders’ equity 574,518  748,160 
Noncontrolling interests 51,617  57,610 
Total equity 626,135  805,770 
Total liabilities and equity $ 2,771,395  $ 3,053,908 
See accompanying notes to unaudited condensed consolidated financial statements.
4
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands, except per share amounts) 2022 2021 2022 2021
Revenues from continuing operations:    
Service revenues $ 442,775  $ 430,824  $ 1,300,828  $ 1,274,814 
Product revenues 44,139  39,561  119,935  111,510 
Total revenues 486,914  470,385  1,420,763  1,386,324 
Costs and expenses from continuing operations:    
Cost of services sold 357,194  344,050  1,072,545  1,018,885 
Cost of products sold 35,609  31,289  100,476  89,269 
Selling, general and administrative expenses 64,146  70,629  201,234  213,048 
Research and development expenses 193  331  545  811 
Goodwill impairment charge —  —  104,580  — 
Other (income) expenses, net (351) (2,835) 515  (7,993)
Total costs and expenses 456,791  443,464  1,479,895  1,314,020 
Operating income (loss) from continuing operations 30,123  26,921  (59,132) 72,304 
Interest income 952  544  2,289  1,668 
Interest expense (19,751) (15,741) (51,535) (47,640)
Facility fees and debt-related income (expense) (2,511) (198) (894) (5,506)
Defined benefit pension income 2,118  3,887  6,775  11,777 
Income (loss) from continuing operations before income taxes and equity income 10,931  15,413  (102,497) 32,603 
Income tax benefit (expense) from continuing operations (9,376) (7,816) (7,482) (14,714)
Equity income (loss) of unconsolidated entities, net (128) (293) (373) (488)
Income (loss) from continuing operations 1,427  7,304  (110,352) 17,401 
Discontinued operations:    
Income (loss) from discontinued businesses 1,993  1,301  (35,225) 12,904 
Income tax benefit (expense) from discontinued businesses (539) 1,223  5,282  (3,832)
Income (loss) from discontinued operations, net of tax 1,454  2,524  (29,943) 9,072 
Net income (loss) 2,881  9,828  (140,295) 26,473 
Less: Net (income) loss attributable to noncontrolling interests (802) (2,264) (3,056) (5,386)
Net income (loss) attributable to Harsco Corporation $ 2,079  $ 7,564  $ (143,351) $ 21,087 
Amounts attributable to Harsco Corporation common stockholders:
Income (loss) from continuing operations, net of tax $ 625  $ 5,040  $ (113,408) $ 12,015 
Income (loss) from discontinued operations, net of tax 1,454  2,524  (29,943) 9,072 
Net income (loss) attributable to Harsco Corporation common stockholders $ 2,079  $ 7,564  $ (143,351) $ 21,087 
Weighted-average shares of common stock outstanding 79,531  79,287  79,469  79,214 
Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders:
Continuing operations $ 0.01  $ 0.06  $ (1.43) $ 0.15 
Discontinued operations 0.02  0.03  (0.38) 0.11 
Basic earnings (loss) per share attributable to Harsco Corporation common stockholders $ 0.03  $ 0.10  (a) $ (1.80) (a) $ 0.27  (a)
Diluted weighted-average shares of common stock outstanding 79,567  80,275  79,469  80,356 
Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders:
Continuing operations $ 0.01  $ 0.06  $ (1.43) $ 0.15 
Discontinued operations 0.02  0.03  (0.38) 0.11 
Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders $ 0.03  $ 0.09  $ (1.80) (a) $ 0.26 
(a) Does not total due to rounding
See accompanying notes to unaudited condensed consolidated financial statements.
5
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months Ended
  September 30
(In thousands) 2022 2021
Net income (loss) $ 2,881  $ 9,828 
Other comprehensive income (loss):    
Foreign currency translation adjustments, net of deferred income taxes of $(4,641) and $(1,850) in 2022 and 2021, respectively
 (54,914) (27,587)
Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $(346) and $(217)in 2022 and 2021, respectively
 1,143  822 
Pension liability adjustments, net of deferred income taxes of $(313) and $(358)in 2022 and 2021, respectively
 28,163  17,768 
Unrealized gain on marketable securities, net of deferred income taxes of $3 and $— in 2022 and 2021, respectively
 (7) — 
Total other comprehensive income (loss) (25,615) (8,997)
Total comprehensive income (loss) (22,734) 831 
Comprehensive (income) loss attributable to noncontrolling interests 1,921  (1,820)
Comprehensive income (loss) attributable to Harsco Corporation $ (20,813) $ (989)
Nine Months Ended
  September 30
(In thousands) 2022 2021
Net income (loss) $ (140,295) $ 26,473 
Other comprehensive income (loss):    
Foreign currency translation adjustments, net of deferred income taxes of $(11,095) and $(675)in 2022 and 2021, respectively
 (116,407) (15,437)
Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $(977) and $(519)in 2022 and 2021, respectively
 3,003  1,745 
Pension liability adjustments, net of deferred income taxes of $(977) and $(1,054)in 2022 and 2021, respectively
 70,691  23,812 
Unrealized gain (loss) on marketable securities, net of deferred income taxes of $7 and $(9)in 2022 and 2021, respectively
 (20) 25 
Total other comprehensive income (loss) (42,733) 10,145 
Total comprehensive income (loss) (183,028) 36,618 
Less: Comprehensive (income) loss attributable to noncontrolling interests 3,052  (4,549)
Comprehensive income (loss) attributable to Harsco Corporation $ (179,976) $ 32,069 

See accompanying notes to unaudited condensed consolidated financial statements.
6
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
 Nine Months Ended September 30
(In thousands) 2022 2021
Cash flows from operating activities:    
Net income (loss) $ (140,295) $ 26,473 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation 97,959  98,383 
Amortization 25,605  26,554 
Deferred income tax (benefit) expense (12,056) (8,911)
Equity (income) loss of unconsolidated entities, net 373  488 
Dividends from unconsolidated entities 526  — 
(Gain) loss on early extinguishment of debt (2,254) 2,668 
Goodwill impairment charge 104,580  — 
Other, net 381  (1,147)
Changes in assets and liabilities, net of acquisitions and dispositions of businesses:    
Accounts receivable 74,994  (32,563)
Income tax refunds receivable, reimbursable to seller 7,687  735 
Inventories (11,339) 3,557 
Contract assets 9,589  (52,205)
Right-of-use assets 21,829  21,050 
Accounts payable 13,030  12,111 
Accrued interest payable (7,559) (7,840)
Accrued compensation (5,559) 12,098 
Advances on contracts (5,987) (13,997)
Operating lease liabilities (21,498) (20,554)
Retirement plan liabilities, net (27,829) (36,700)
Other assets and liabilities 8,984  16,550 
Net cash provided by operating activities 131,161  46,750 
Cash flows from investing activities:    
Purchases of property, plant and equipment (101,645) (109,507)
Proceeds from sales of assets 8,289  15,512 
Expenditures for intangible assets (147) (287)
Proceeds from notes receivable 8,605  6,400 
Net proceeds (payments) from settlement of foreign currency forward exchange contracts 13,571  (1,064)
Payments for settlements of interest rate swaps (2,586) — 
Other investing activities, net 220  181 
Net cash used by investing activities (73,693) (88,765)
Cash flows from financing activities:    
Short-term borrowings, net 277  4,650 
Current maturities and long-term debt:    
Additions 159,429  507,468 
Reductions (198,831) (452,351)
Dividends paid to noncontrolling interests (4,841) (3,103)
Sale of noncontrolling interests 1,901  — 
Stock-based compensation - Employee taxes paid (1,817) (3,273)
Payment of contingent consideration (6,915) (734)
Deferred financing costs —  (7,828)
Other financing activities, net —  (601)
Net cash (used) provided by financing activities (50,797) 44,228 
Effect of exchange rate changes on cash and cash equivalents, including restricted cash (8,762) (1,779)
Net increase in cash and cash equivalents, including restricted cash (2,091) 434 
Cash and cash equivalents, including restricted cash, at beginning of period 87,128  79,669 
Cash and cash equivalents, including restricted cash, at end of period $ 85,037  $ 80,103 
Supplementary cash flow information:
Change in accrual for purchases of property, plant and equipment included in accounts payable $ 7,419  $ 2,357 
See accompanying notes to unaudited condensed consolidated financial statements.
7
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
  Harsco Corporation Stockholders’ Equity    
Common Stock Additional Paid-in Capital Retained
Earnings		 Accumulated Other
Comprehensive
Loss		 Noncontrolling
Interests		  
(In thousands, except share  amounts) Issued Treasury Total
Balances, December 31, 2020
 $ 144,288  $ (843,230) $ 204,078  $ 1,797,759  $ (645,741) $ 56,245  $ 713,399 
Net income       135    1,430  1,565 
Total other comprehensive income (loss), net of deferred income taxes of $134
 2,295  (1,066) 1,229 
Stock appreciation rights exercised, net 3,842 shares
 9  (70) (9) (70)
Vesting of restricted stock units and other stock grants, net 144,967 shares
 312  (1,850) (312)       (1,850)
Vesting of performance share units, net 69,127 shares
 155  (1,032) (155) (1,032)
Amortization of unearned portion of stock-based compensation, net of forfeitures     3,342        3,342 
Balances, March 31, 2021
 144,764  (846,182) 206,944  1,797,894  (643,446) 56,609  716,583 
Net income 13,388  1,692  15,080 
Cash dividends declared:
   Noncontrolling interests (3,094) (3,094)
Total other comprehensive income, net of deferred income taxes of $34
 17,240  673  17,913 
Stock appreciation rights exercised, net 13,061 shares
 28  (219) (28) (219)
Vesting of restricted stock units and other stock grants, net 34,986 shares
 44  (44) — 
Amortization of unearned portion of stock-based compensation, net of forfeitures     3,120        3,120 
Balances, June 30, 2021
 $ 144,836  $ (846,401) $ 209,992  $ 1,811,282  $ (626,206) $ 55,880  $ 749,383 
Net income (loss) 7,564  2,264  9,828 
Cash dividends declared:
   Noncontrolling interests (9) (9)
Total other comprehensive income (loss), net of deferred income taxes of $(2,425)
 (8,553) (444) (8,997)
Vesting of restricted stock units and other stock grants, net 10,824 shares
 20  (101) (20) (101)
Amortization of unearned portion of stock-based compensation, net of forfeitures     3,123        3,123 
Balances, September 30, 2021
 $ 144,856  $ (846,502) $ 213,095  $ 1,818,846  $ (634,759) $ 57,691  $ 753,227 



8
  Harsco Corporation Stockholders’ Equity    
(In thousands, except share amounts) Common Stock Additional Paid-in Capital Retained
Earnings		 Accumulated Other
Comprehensive
Loss		 Noncontrolling
Interests		  
Issued Treasury Total
Balances, December 31, 2021
 $ 144,883  $ (846,622) $ 215,528  $ 1,794,510  $ (560,139) $ 57,610  $ 805,770 
Net income (loss)       (39,839)   1,159  (38,680)
Total other comprehensive income (loss), net of deferred income taxes of $(2,520)
 12,490  (482) 12,008 
Vesting of restricted stock units and other stock grants, net 176,253 shares
 378  (1,632) (378)       (1,632)
Amortization of unearned portion of stock-based compensation, net of forfeitures     3,629      3,629 
Balances, March 31, 2022
 145,261  (848,254) 218,779  1,754,671  (547,649) 58,287  781,095 
Net income (loss) (105,591) 1,095  (104,496)
Total other comprehensive income (loss), net of deferred income taxes of $(5,225)
 (26,223) (2,903) (29,126)
Contributions from noncontrolling interests 1,900  1,900 
Stock appreciation rights exercised, net 16,671 shares
 29  (66) (29) (66)
Vesting of restricted stock units and other stock grants, net 23,224 shares
 29  (29) — 
Amortization of unearned portion of stock-based compensation, net of forfeitures 2,396  2,396 
Balances, June 30, 2022
 $ 145,319  $ (848,320) $ 221,117  $ 1,649,080  $ (573,872) $ 58,379  $ 651,703 
Net income (loss) 2,079  $ —  802  2,881 
Cash dividends declared:
Noncontrolling interests (4,841) (4,841)
Total other comprehensive income (loss), net of deferred income taxes of $(5,297)
 (22,892) (2,723) (25,615)
Vesting of restricted stock units and other stock grants, net 32,836 shares
 71  (119) (71) (119)
Amortization of unearned portion of stock-based compensation, net of forfeitures 2,126  2,126 
Balances, September 30, 2022
 $ 145,390  $ (848,439) $ 223,172  $ 1,651,159  $ (596,764) $ 51,617  $ 626,135 

See accompanying notes to unaudited condensed consolidated financial statements.
9
HARSCO CORPORATION
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, 2021 Condensed Consolidated Balance Sheet information contained in this Quarterly Report on Form 10-Q was derived from the 2021 audited consolidated financial statements.  These 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, 2021. 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 these unaudited condensed consolidated financial statements. 

Liquidity

The Company’s cash flow forecasts, combined with existing cash and cash equivalents and borrowings available under the Senior Secured Credit Facilities, indicate sufficient liquidity to fund the Company’s operations for at least the next twelve months. As such, the Company’s unaudited consolidated financial statements have been prepared on the basis that it will continue as a going concern for a period extending beyond twelve months from the date the unaudited consolidated financial statements are issued. This assessment includes the expected ability to meet required financial covenants and the continued ability to draw down on the Senior Secured Credit Facilities (see Note 9).

Reclassifications

Certain reclassifications have been made to prior year amounts to conform with current year classifications.

During the second quarter of 2022, the Company recognized $2.6 million in service revenues as an out-of-period adjustment in the Harsco Clean Earth Segment. The adjustment was not considered material to the interim or annual consolidated financial statements for the nine months ended September 30, 2022, or the financial statements of any previously filed interim or annual periods. There was no impact to the interim consolidated financial statements for the three months ended September 30, 2022.

2.     Recently Adopted and Recently Issued Accounting Standards

The following accounting standards have been adopted in 2022:

On January 1, 2022, the Company adopted changes issued by the FASB 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 adoption of these changes did not have a material impact on the Company's condensed consolidated financial statements.

On January 1, 2022, the Company adopted changes issued by the FASB which improve the transparency of government assistance received by entities. Other than expanded annual disclosures, the adoption of 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 March 2020 and January 2021, the FASB issued changes that, together, 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 alternative reference rates 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. The changes can be adopted no later than December 31, 2022. The Company has identified financial instruments linked to LIBOR and intends to transition to alternative reference rates by December 31, 2022. The adoption of the applicable provisions will coincide with the modifications of the affected financial instruments. The transition from LIBOR is not expected to have a material impact on the Company.

10
In September 2022, the FASB issued changes that require a buyer in a supplier finance program, also referred to as reverse factoring, payables finance, or structured payables arrangements, to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude, by disclosing qualitative and quantitative information about the program. The changes become effective January 1, 2023, generally with retrospective application to each period in which a balance sheet is presented. Management is evaluating the impact of these reporting requirements. Other than the potential required expanded disclosures, the adoption of these changes will not have a material impact on the Company's consolidated financial statements.


3. Dispositions

Harsco Rail Segment
In November 2021, the Company announced its intention to sell its Rail business and the sales process is ongoing. The former Harsco Rail Segment was historically a separate reportable segment with primary operations in the United States, Europe and Asia Pacific.

The former Harsco Rail Segment's balance sheet positions as of September 30, 2022 and December 31, 2021 are presented as Assets held-for-sale and Liabilities of assets held-for-sale in the Condensed Consolidated Balance Sheets and are summarized as follows:
(in thousands) September 30
2022		 December 31
2021
Trade accounts receivable, net $ 44,677  $ 33,689 
Other receivables 4,304  4,740 
Inventories 97,552  103,560 
Current portion of contract assets 87,199  94,597 
Other current assets 27,961  25,442 
Property, plant and equipment, net 40,012  39,524 
Right-of-use assets, net 1,903  3,108 
Goodwill 13,026  13,026 
Intangible assets, net 2,786  3,081 
Deferred income tax assets 4,993  6,064 
Other assets 1,144  6,432 
Total Rail assets included in Assets held-for-sale $ 325,557  $ 333,263 
Accounts payable $ 35,794  $ 46,076 
Accrued compensation 3,420  2,171 
Current portion of operating lease liabilities 990  1,619 
Current portion of advances on contracts 50,536  62,401 
Other current liabilities 66,492  49,732 
Operating lease liabilities 997  1,775 
Deferred tax liabilities 5,571  5,736 
Other liabilities 868  981 
Total Rail liabilities included in Liabilities of assets held-for-sale $ 164,668  $ 170,491 
11
The results of the former Harsco Rail Segment are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the three and nine months ended September 30, 2022, and 2021. Certain key selected financial information included in Income (loss) from discontinued operations, net of tax, for the former Harsco Rail Segment is as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2022 2021 2022 2021
Amounts directly attributable to the former Harsco Rail Segment:
Service revenues $ 8,629  $ 7,800  $ 22,827  $ 24,990 
Product revenues (a)
 60,386  66,115  169,778  231,661 
Cost of services sold 6,559  4,193  15,823  12,373 
Cost of products sold 49,789  54,830  176,210  189,288 
Income (loss) from discontinued businesses 3,964  2,829  (26,768) 17,674 
Additional amounts allocated to the former Harsco Rail Segment:
  Selling, general and administrative expenses (b)
 $ 376  $ —  $ 3,887  $ — 
(a) The decrease in product revenues for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 is due in part to liquidated damages and penalties on certain long-term contracts, as discussed below.
(b) The Company has allocated directly attributable transaction costs to discontinued operations.

The Company has retained corporate overhead expenses previously allocated to the former Harsco Rail Segment of $1.0 million and $3.1 million for each of the three and nine months ended September 30, 2022, and 2021, respectively, as part of Selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

The Company's former Harsco Rail Segment is currently manufacturing highly-engineered equipment under large long-term fixed-price contracts with SBB, Network Rail, and Deutsche Bahn. As previously disclosed, in the fourth quarter of 2021 the Company recognized an estimated forward loss provision of $33.4 million related to these contracts. In 2022, the Company encountered continued supply chain related delays and additional costs in building the machines.

For the Network Rail contracts, the Company encountered supply chain delays in the build of the initial machine, and there were further changes to the production schedule based on the manufacturing experience gained from assembling the first unit during the first quarter of 2022 which had a cascading effect on the delivery schedule of remaining machines. During the nine months ended September 30, 2022, the Company recorded additional forward loss provisions of $24.5 million, principally for additional estimated contractual liquidated damages which were recorded as a reduction to revenue in the first quarter of 2022. The Company continues to negotiate with Network Rail regarding a reduction to these liquidated damages, which could result in additional favorable or unfavorable adjustments in future periods.

For the Deutsche Bahn contract, on March 8, 2022 a European-based supplier of critical components to the project, indicated it would be significantly late on the delivery of these components to the project, which has the impact of delaying the overall delivery schedule for the project. As a result, the Company recorded an additional $7.4 million estimated forward loss provision during the first quarter of 2022 due principally to the estimated contractual penalties that would be triggered by this delay and thus recorded as a reduction of revenue. Additionally, this supplier filed for bankruptcy during the second quarter of 2022, although it continues to operate. Should this supplier cease operations, the Company may incur further losses if there are additional costs to change suppliers or an inability to recover the value of prepayments made to the supplier, as well as additional penalties and damages under the contract with Deutsche Bahn in the event of further production delays.

For the second SBB contract, the Company recorded an additional $3.5 million forward estimated loss provision during the first quarter of 2022 due to additional supply chain delays and cost overruns.

The estimated forward loss provisions represent the Company's best estimate based on currently available information. It is possible that the Company's overall estimate of liquidated damages, penalties and costs to complete these contracts may change, which would result in an additional estimated forward loss provision at such time.

The first contract with SBB is complete, and the second contract is 83% complete as of September 30, 2022. The contracts with Network Rail and Deutsche Bahn are 50% and 29% complete, respectively, as of September 30, 2022.

12
The following is selected financial information included on the Condensed Consolidated Statements of Cash Flows attributable to the former Harsco Rail Segment:
Nine Months Ended September 30
(In thousands) 2022 2021
Non-cash operating items
Depreciation and amortization $ —  $ 3,905 
Cash flows from investing activities
Purchases of property, plant and equipment 1,494  1,329 


4.    Accounts Receivable and Note Receivable
Accounts receivable consist of the following:
September 30, 2022
December 31 2021 (a)
Trade accounts receivable $ 278,876  $ 389,535 
Less: Allowance for expected credit losses (8,986) (11,654)
Trade accounts receivable, net $ 269,890  $ 377,881 
Other receivables (b)
 $ 26,307  $ 33,059 
(a) The December 31, 2021 amounts for trade accounts receivable and allowance for expected credit losses have been revised from the presentation in the Company's 2021 10-K. This revision did not impact trade accounts receivable, net.
(b) 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 expected credit losses related to trade accounts receivable was as follows:

  Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2022 2021 2022 2021
Provision for expected credit losses related to trade accounts receivable $ (340) $ (146) $ (283) $ 582 

At September 30, 2022, $7.4 million of the Company's trade accounts receivable were past due by twelve months or more, with $3.2 million of this amount reserved. Collection of the remaining balance is still ultimately expected.

Accounts Receivable Securitization Facility
On June 24, 2022, the Company and its wholly-owned bankruptcy-remote special purpose entity ("SPE") entered into a trade receivables securitization facility (“AR Facility”) with PNC Bank, National Association ("PNC") to accelerate cash flows from trade accounts receivable. The AR Facility has a three-year term.

Under the AR Facility, the Company and its subsidiaries continuously sell their trade receivables as they are originated to the SPE. The Company controls and therefore consolidates the SPE in its condensed consolidated financial statements. The SPE transfers ownership and control of qualifying receivables to PNC up to a maximum purchase commitment of $150.0 million. The Company and related subsidiaries have no continuing involvement in the transferred accounts receivable, other than collection and administrative responsibilities, and, once sold, are no longer available to satisfy creditors of the Company or the related subsidiaries. The Company accounts for receivables sold from the SPE to PNC as a sale of financial assets and derecognizes the trade receivables from the Company's Condensed Consolidated Balance Sheets.

The total outstanding balance of trade receivables that have been sold and derecognized by the SPE is $145.0 million as of September 30, 2022. The SPE owned $86.5 million of trade receivables as of September 30, 2022. These amounts are included in the caption Trade accounts receivable, net, on the Condensed Consolidated Balance Sheets.

The fees incurred for the AR Facility are included in Facility fees and debt-related income (expense) on the Condensed Consolidated Statements of Operations. See Note 9, Debt and Credit Agreements, for additional details. The Company capitalized fees of $1.8 million related to the securitization facility, which are being amortized over the term of the agreement.

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Upon execution of the AR Facility during the second quarter of 2022, the Company received proceeds of $120.0 million. In the third quarter of 2022, the Company sold an additional $25.0 million of receivables to PNC, and has received a total of $145.0 million in proceeds as of September 30, 2022, which is included in cash from operating activities in the Condensed Consolidated Statement of Cash Flows.

Factoring Arrangements
The Company maintains factoring arrangements with a financial institution to sell certain accounts receivable that are also accounted for as a sale of financial assets. At September 30, 2022 and December 31, 2021, the net amounts sold under the arrangements were $15.7 million and $12.9 million, respectively, under program capacities totaling $28.8 million and $16.5 million, respectively.

Note Receivable
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 September 30, 2022 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. During the second quarter of 2022, the Company received a payment of $8.6 million related to excess cash flow.
(In thousands) September 30
2022		 December 31
2021
Note receivable, at amortized cost $ 23,556  $ 31,025 
Note receivable, fair value 23,300  32,300 


5.    Inventories
Inventories consist of the following:
(In thousands) September 30
2022		 December 31
2021
Finished goods $ 9,714  $ 8,323 
Work-in-process 4,109  5,393 
Raw materials and purchased parts 27,065  21,188 
Stores and supplies 39,826  35,589 
Total inventories $ 80,714  $ 70,493 


6.     Property, Plant and Equipment
Property, plant and equipment consist of the following:
(In thousands) September 30
2022		 December 31
2021
Land $ 72,593  $ 73,067 
Land improvements 16,404  16,970 
Buildings and improvements 212,157  221,236 
Machinery and equipment 1,441,669  1,507,214 
Uncompleted construction 73,645  63,816 
Gross property, plant and equipment 1,816,468  1,882,303 
Less: Accumulated depreciation (1,186,573) (1,228,390)
Property, plant and equipment, net $ 629,895  $ 653,913 

14
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 continues 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 $18 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 and the customer continue to discuss and the Company is evaluating its legal position. In addition, there may be other avenues of pursuing recovery, including seeking relief directly from the local government. Considering the ongoing discussions with the customer, and other available 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 September 30, 2022. The Company continues to evaluate changes in facts and circumstances and will record any impairment charge, when and if indicated.


7. Leases
The components of lease expense were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2022 2021 2022 2021
Finance leases:
Amortization expense $ 940  $ 743  $ 2,897  $ 1,692 
Interest on lease liabilities 198  129  563  340 
Operating leases 8,604  8,133  25,105  23,961 
Variable and short-term lease expense 11,958  12,279  37,287  37,405 
Sublease income (2) (1) (5) (52)
Total lease expense from continuing operations $ 21,698  $ 21,283  $ 65,847  $ 63,346 

As of September 30, 2022, the Company had additional operating leases for equipment that had not yet commenced with estimated operating lease obligations of approximately $13 million to be recognized upon anticipated lease commencements in the fourth quarter of 2022 and throughout 2023. The former Harsco Rail segment had additional operating leases for buildings that have not yet commenced with estimated obligations of approximately $2 million to be recognized upon anticipated lease commencement in the fourth quarter of 2022.

8.     Goodwill and Other Intangible Assets

The following table reflects the changes in carrying amounts of goodwill by segment for the nine months ended September 30, 2022:
(In thousands) Harsco Environmental
Segment		 Harsco
Clean Earth
Segment		 Consolidated
Totals
Balance at December 31, 2021 $ 399,230  $ 483,879  $ 883,109 
Goodwill impairment —  (104,580) (104,580)
Foreign currency translation (33,749) —  (33,749)
Balance at September 30, 2022 $ 365,481  $ 379,299  $ 744,780 

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.
15
As of June 30, 2022, the Company determined that an interim test of goodwill was required. The triggering event was principally due to lower earnings expectations due to the impacts of inflation. The Company used a discounted cash flow model (“DCF model”) to estimate the current fair value of the Clean Earth reporting unit (Level 3), which is defined as the Clean Earth Segment. 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. The DCF model is based on approved forecasts for the early years and historical relationships and projections for later years. The WACC rate is 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. As a result of this testing, the Company recorded a goodwill impairment charge of $104.6 million for the Clean Earth Segment in the second quarter of 2022. This charge had no impact on the Company's cash flows or compliance with debt covenants.    
The Company determined that, as of September 30, 2022, there were no events or indicators present that would indicate that it was more-likely-than-not that its reporting units' fair values were less than their carrying amounts, which would require a further interim impairment analysis.  However, a continued economic downturn, including continued cost inflation and labor shortages, as well as rising interest rates, could impact the Company's future projected cash flows and discount rates used to estimate fair value, which could result in an impairment charge to any of the Company's reporting units in a future period.
Other Intangibles
Because of lower-than-expected results for the Altek Group of the Harsco Environmental Segment for 2021 due to the timing of customer contracts, the Company tested Altek's asset group's recoverability in the fourth quarter of 2021 and no impairment was recorded. The long-lived assets (other than goodwill) of the Altek Group within the Harsco Environmental Segment primarily consist of intangible assets which have a carrying value of approximately $29 million at September 30, 2022. The Company has not identified any triggering events for the Altek asset group in the third quarter of 2022. However, if actual results prove inconsistent with the Company’s assumptions and judgments of the projected cash flows, it could result in impairment of the Altek intangible assets in future periods.

9. Debt and Credit Agreements

On February 22, 2022, the Company amended its Senior Secured Credit Facilities to reset the levels of its net debt to consolidated adjusted EBITDA ratio covenant. As a result of this amendment, the total net debt to consolidated adjusted EBITDA ratio covenant was set at 5.50x for the quarter ending June 30, 2022, and decreases quarterly by 0.25x until reaching 4.00x for the quarter ending December 31, 2023 and thereafter. In addition, upon closing on the divestiture of the former Harsco Rail Segment, the total net debt to consolidated adjusted EBITDA ratio covenant will decrease by an additional 0.25x, provided, however, it will not go below 4.00x and a minimum consolidated adjusted EBITDA to consolidated interest charges ratio covenant, which is not to be less than 3.0x.

On August 29, 2022, the Company amended its Revolving Credit Facility under its Senior Secured Credit Facilities to increase certain levels in the total net leverage covenant, temporarily reduce the ratio under the interest coverage covenant and add a new pricing level applicable to revolving credit loans. Revolving credit loans now bear interest at a rate, depending on total net leverage, ranging from 50 to 175 basis points over base rate or 150 to 275 basis points over LIBOR, subject to a zero floor. The Company’s total net leverage is capped at 5.50x of consolidated adjusted EBITDA through the end of 2023; the maximum total net leverage ratio decreases quarterly thereafter, reaching 4.00x for the last quarter in 2024 and thereafter. The total net leverage ratio covenant applicable to the third quarter of 2024 and earlier is subject to a 0.50x decrease upon closing of the divestiture of the former Harsco Rail Segment. The Company’s required coverage of consolidated interest charges is set at a minimum of 2.75x of consolidated adjusted EBITDA through the end of 2024 (subject to an increase to 3.0x upon closing of the divestiture of the former Harsco Rail Segment), and leveling at 3.0x for the first quarter in 2025 and thereafter. Any principal amount outstanding under the Revolving Credit Facility remains due and payable on its maturity on March 10, 2026.

At September 30, 2022, the Company was in compliance with these covenants, as the total net debt to consolidated adjusted EBITDA ratio (as defined in the Credit Agreement) was 5.03x and total interest coverage ratio was 3.67x.

The Company believes it will continue to maintain compliance with these covenants over the next twelve months based on its current outlook. However, the Company’s estimates of compliance with these covenants could change in the future with a continued deterioration in economic conditions or an inability to successfully execute its plans to realize increased pricing and to implement cost reduction initiatives that substantially mitigate the impacts of inflation and other factors adversely impacting its realized operating margins.

16
In connection with entering into its AR Facility on June 24, 2022, the Company amended its Senior Secured Credit Facilities to increase the permitted maximum outstanding amount of a securitization facility to $150 million. Certain other covenants and definitions were also modified to facilitate the AR Facility.

In June 2022, the Company repurchased $25.0 million of its 5.75% Senior Notes on the open market at a discount for $22.4 million. The Company recognized a gain on the extinguishment of debt of $2.3 million, net of the write-off of $0.3 million of previously recorded deferred financing costs, in the caption Facility fees and debt-related income (expense) on the Condensed Consolidated Statement of Operations.
Long-term debt consists of the following:
(In thousands) September 30
2022		 December 31
2021
Senior Secured Credit Facilities:
New Term Loan $ 493,750  $ 497,500 
Revolving Credit Facility 353,000  362,000 
5.75% Senior Notes 475,000  500,000 
Other financing payable (including finance leases) in varying amounts 25,836  28,389 
Total debt obligations 1,347,586  1,387,889 
Less: deferred financing costs (15,884) (18,217)
Total debt obligations, net of deferred financing costs 1,331,702  1,369,672 
Less: current maturities of long-term debt (16,784) (10,226)
Long-term debt $ 1,314,918  $ 1,359,446 
Facility Fees and Debt-Related Income (Expense)
The components of the Condensed Consolidated Statements of Operations caption Facility fees and debt-related income (expense) were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2022 2021 2022 2021
Gain (loss) on extinguishment of debt $ —  $ —  $ 2,254  $ (2,668)
Unused debt commitment and amendment fees (1,097) (198) (1,635) (2,838)
Securitization and factoring fees (1,414) —  (1,513) — 
Facility fees and debt-related income (expense) $ (2,511) $ (198) $ (894) $ (5,506)




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10.  Employee Benefit Plans
  Three Months Ended
September 30
Defined Benefit Pension Plan Net Periodic Pension Cost (Benefit) U.S. Plans International Plans
(In thousands) 2022 2021 2022 2021
Service costs $ —  $ —  $ 400  $ 463 
Interest costs 1,429  1,203  3,887  3,194 
Expected return on plan assets (2,699) (3,050) (9,145) (11,358)
Recognized prior service costs —  —  107  127 
Recognized actuarial losses 1,183  1,384  3,115  4,573 
Defined benefit pension plan net periodic pension cost (benefit) $ (87) $ (463) $ (1,636) $ (3,001)
  Nine Months Ended
September 30
Defined Benefit Pension Plans Net Periodic Pension Cost (Benefit) U.S. Plans International Plans
(In thousands) 2022 2021 2022 2021
Service costs $ —  $ —  $ 1,250  $ 1,391 
Interest costs 4,287  3,609  12,409  9,576 
Expected return on plan assets (8,096) (9,150) (29,250) (34,080)
Recognized prior service costs —  —  340  381 
Recognized actuarial losses 3,549  4,154  9,972  13,722 
Defined benefit pension plans net periodic pension cost (benefit) $ (260) $ (1,387) $ (5,279) $ (9,010)

Three Months Ended Nine Months Ended
Company Contributions September 30 September 30
(In thousands) 2022 2021 2022 2021
Defined benefit pension plans (U.S.) $ 426  $ 451  $ 1,313  $ 3,768 
Defined benefit pension plans (International) 3,824  4,549  19,411  21,472 
Multiemployer pension plans 446  429  1,381  1,311 
Defined contribution pension plans 3,019  2,936  9,948  9,366 
The Company's estimate of expected cash contributions to be paid during the remainder of 2022 for the U.S. and international defined benefit pension plans is $0.4 million and $3.4 million, respectively.


11.     Income Taxes 

Income tax expense related to continuing operations for the three and nine months ended September 30, 2022 was $9.4 million and $7.5 million, respectively, compared with $7.8 million and $14.7 million for the three and nine months ended September 30, 2021, respectively. Income tax expense related to continuing operations for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 increased primarily due to disallowed interest expense in U.S. due to lower taxable income, offset by lower operating income primarily as a result of cost increases due to inflation. Income tax expense related to continuing operations for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 decreased primarily from lower operating income as a result of cost increases due to inflation and labor shortages, as well as the tax benefit on a portion of the Harsco Clean Earth Segment goodwill impairment.

The reserve for uncertain tax positions at September 30, 2022 was $4.8 million, including interest and penalties.  Within the next twelve months, it is reasonably possible that $0.3 million unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.


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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) September 30
2022		 December 31
2021
Current portion of environmental liabilities (a)
 $ 8,491  $ 7,338 
Long-term environmental liabilities 26,678  28,435 
Total environmental liabilities $ 35,169  $ 35,773 
(a)    The current portion of environmental liabilities is included in the caption Other current liabilities on the Condensed Consolidated Balance Sheets.

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 March 28, 2018, the United States Environmental Protection Agency (the “EPA”) conducted an inspection of ESOL’s off-site waste management facility in Detroit, MI. On November 23, 2021, the EPA proposed a civil penalty of $390,092 as part of a proposed Administrative Consent Order for alleged improper air emissions at the site. The allegations in the proposed Administrative Consent Order and civil penalty relate exclusively to the period prior the Company’s purchase of the ESOL business. The Company is vigorously contesting the allegations. While it is the Company's position that any loss related to this issue will be recoverable under indemnity rights under the ESOL purchase agreement and representations and warranties insurance policies purchased by the Company, there can be no assurance that the Company's position will ultimately prevail. On August 31, 2022, the parties executed a Tolling Agreement which excludes the period from March 1, 2022 through December 30, 2022 for the purposes of calculating the statute of limitations and other related defenses.

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. The U.S. EPA expects to propose a sitewide cleanup plan no sooner than 2024 and announced in July 2021 that it would defer its decision on a potential early action response for the lower two miles of the Creek until the sitewide studies are completed. The Company is one of approximately twenty (20) 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 or results from operations.

19
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, denying the renewal of the facility's hazardous waste permit. The Company has exhausted its legal challenges to the denial of the Hazardous waste Facility Permit, and the hazardous waste facility is in the process of closing. The Company continues to utilize the site for non-hazardous waste and is evaluating additional potential alternate uses for the site. The DTSC investigation and compliance issues leading to the compliance tier assignment were 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. 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 was completed during the third quarter of 2021 and the processing of the salt cakes has commenced. The current reserve of $6.5 million continues to represent 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 which 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 thousand per day) and CSN 20,000 Brazilian reais per day (or approximately $4 thousand 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 $5 thousand per day) and raising the fines assessed to CSN to 100,000 Brazilian reais per day (or approximately $19 thousand per day). The Court also assessed an additional fine of 10,000,000 Brazilian reais (or approximately $2 million) 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 Prosecution Offices and governmental authorities on the injunction and the possible resolution of the underlying case. Beginning on March 25, 2022, the Courts entered a series of orders suspending the litigation proceedings as well as the accrual of interest and penalties while the parties discuss a possible resolution of the matter. 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 alleged violations of the Company’s environmental permit at the site, which restricts the release of any visible dust emissions. On January 12, 2022, the Administrative Supreme Court upheld the Company’s challenge of these enforcement actions as they relate to the slag tipping area of the site. As a result, all fines asserted against the Company to date have been invalidated and all fines paid to date have been reimbursed. This order is not appealable. On or about October 14, 2021, the Company received a subpoena and two indictments on this matter before the Amsterdam District Court in the Netherlands. The Amsterdam Public Prosecutor’s Office issued the two indictments against the Company, alleging violations in connection with dust releases and/or events alleged to have occurred in 2018 through May 2020 at the site. The action cites provisions which permit fines for the alleged infractions and seeks €100,000 in fines with a smaller amount held in abeyance. On February 25, 2022, the Amsterdam District Court ruled that the Company was liable for only one alleged violation and that this alleged violation was unintentional. The court issued a fine of €5,000, to be held in abeyance. Both the Company and the Public Prosecutor’s Office have appealed this ruling. On February 2, 2022, the prosecutor announced that they would further investigate residents’ claims related to this matter. The Company is vigorously contesting all allegations against it and is also working with its customer to ensure the control of emissions. The Company has contractual indemnity rights from its customer that it believes will substantially cover any fines or penalties.

20
On March 22, 2022, the U.S. EPA issued a Notice of Intent to File an Administrative Complaint (NOI) alleging violations of the federal Emergency Planning and Community Right-to-Know Act at the Company’s facilities in Tacoma, WA and Kent, WA. The NOI relates exclusively or almost exclusively to the period when Stericycle owned and operated the sites. The NOI proposes a penalty of $3,000,000. The Company is currently reviewing the veracity of the allegations and the corresponding proposed penalty amount. While it is the Company’s position that it has recourse for some or all liabilities, if any, that arise from this matter 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.

On March 21, 2022, the Company received a draft penalty matrix from the PA DEP concerning alleged reporting, monitoring and related issues at the Company’s Hatfield, PA site prior to the time the Company acquired the site from Stericycle. The draft penalty matrix proposes a penalty of $1,000,000. On June 29, 2022, the PA DEP issued a draft Consent Assessment of Civil Penalty ("CACP") related to the alleged issues at the site, although the draft CACP does not propose a specific penalty. The Company is currently reviewing the veracity of the allegations. While it is the Company’s position that it has recourse for some or all liabilities, if any, that arise from this matter 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.

On November 5, 2020, a worker suffered a fatal injury at a site owned by the Company’s customer, Gerdau Ameristeel US, Inc., in Midlothian, TX. Although the Company was not directly involved in the accident, the worker was employed by a sub-contractor of a sub-contractor of the Company. The worker’s family filed suit in the 125th Judicial District Court of Harris County, TX against multiple parties including the Company. The Company is vigorously defending the lawsuit and has insurance coverage subject to a $5 million deductible. The Company has recorded a liability for its insurance deductible and an indemnification receivable from its customer for the recovery of certain losses based upon the contractual indemnity rights. There can be no assurances that the Company's position will ultimately prevail; however, any financial statement impact is not expected to be material.

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 September 30, 2022 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 $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 $1.1 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 $6.8 million. All such amounts include the
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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 aggregate amount assessed by the tax authorities in August 2005 was $4.7 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 $1.1 million, with penalty and interest assessed through that date increasing such amount by an additional $3.6 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 liability for this case to be approximately $5.2 million. All such amounts include the effect of foreign currency translation. The Company has appealed to the judicial phase at the Third Trial Court of the District of Cubatão, State of São Paulo. On October 14, 2022, the District Court issued a decision holding that the Company is not liable for the taxes at issue. 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 $2.0 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 $3.3 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 September 30, 2022 and December 31, 2021, the Company has established reserves of $2.5 million and $3.2 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.

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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 September 30, 2022, there were approximately 17,220 pending asbestos personal injury actions filed against the Company.  Of those actions, approximately 16,585 were filed in the New York Supreme Court (New York County), 115 were filed in other New York State Supreme Court Counties and 520 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 September 30, 2022, approximately 16,550 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 35 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 September 30, 2022, the Company has obtained dismissal in approximately 28,400 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 has been determined to be 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, 2021 for additional information on Accrued insurance and loss reserves.


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13.  Reconciliation of Basic and Diluted Shares
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands, except per share amounts) 2022 2021 2022 2021
Income (loss) from continuing operations attributable to Harsco Corporation common stockholders $ 625  $ 5,040  $ (113,408) $ 12,015 
Weighted-average shares outstanding:
  Weighted-average shares outstanding - basic 79,531  79,287  79,469  79,214 
  Dilutive effect of stock-based compensation 36  988  —  1,142 
  Weighted-average shares outstanding - diluted 79,567  80,275  79,469  80,356 
Earnings (loss) from continuing operations per common share, attributable to Harsco Corporation common stockholders:
Basic $ 0.01  $ 0.06  $ (1.43) $ 0.15 
Diluted $ 0.01  $ 0.06  $ (1.43) $ 0.15 

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 Nine Months Ended
September 30 September 30
(In thousands) 2022 2021 2022 2021
Restricted stock units —  —  763  — 
Stock appreciation rights 2,062  842  2,304  719 
Performance share units 1,052  1,004  1,135  902 


14.   Derivative Instruments, Hedging Activities and Fair Value

Derivative Instruments and Hedging Activities
The Company uses derivative instruments, including foreign currency exchange forward contracts and interest rate swaps 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 and interest rate swaps 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.











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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
September 30, 2022        
Asset derivatives (Level 2):
Foreign currency exchange forward contracts Other current assets $ 3,653  $ 27,131  $ 30,784 
Interest rate swaps Other current assets 269  —  269 
Total   $ 3,922  $ 27,131  $ 31,053 
Liability derivatives (Level 2):
Foreign currency exchange forward contracts Other current liabilities $ 931  $ 1,366  $ 2,297 
Total $ 931  $ 1,366  $ 2,297 
December 31, 2021        
Asset derivatives (Level 2):
Foreign currency exchange forward contracts Other current assets $ 719  $ 1,405  $ 2,124 
Total   $ 719  $ 1,405  $ 2,124 
Liability derivatives (Level 2):
Foreign currency exchange forward contracts Other current liabilities $ 560  $ 2,905  $ 3,465 
Interest rate swaps Other current liabilities 4,157  —  4,157 
Total $ 4,717  $ 2,905  $ 7,622 

All of the Company's derivatives are recorded on the Condensed Consolidated Balance Sheets at gross amounts and do not offset. All of the Company's interest rate swaps 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 net asset of $0.6 million and a net liability of $0.9 million at September 30, 2022 and December 31, 2021, respectively.
The effect of derivative instruments on the Company's Condensed Consolidated Statements of Comprehensive Income (Loss) was as follows:
Derivatives Designated as Hedging Instruments
Amount Recognized in
OCI on Derivatives		 Amount Reclassified from
AOCI into Income - Effective Portion or Equity
Three Months Ended Three Months Ended
September 30 September 30
(In thousands) 2022 2021 2022 2021
Foreign currency exchange forward contracts $ 1,517  $ 611  $ (1,101) $ (418)
Interest rate swaps —  (27) 1,073  872 
  $ 1,517  $ 584  $ (28) $ 454 
Amount Recognized in
OCI on Derivatives		 Amount Reclassified from
AOCI into Income - Effective Portion or Equity
Nine Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2022 2021 2022 2021
Foreign currency exchange forward contracts $ 3,483  $ 170  $ (2,687) $ (465)
Interest rate swaps —  (41) 3,184  2,599 
  $ 3,483  $ 129  $ 497  $ 2,134 

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The location and amount of gain (loss) recognized on the Company's Condensed Consolidated Statements of Operations was as follows:
Three Months Ended
September 30
2022