HARSCO CORPORATION
FORM 10-K
INDEX
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Glossary of Terms
Unless the context requires otherwise, "Harsco," the "Company," "we," "our," or "us" refers to Harsco Corporation on a consolidated basis. The Company may use other terms in this Annual Report on Form 10-K, including the Consolidated Financial Statements and Notes, which are defined below:
| Term | Description | ||||||||||
| AOCI | Accumulated Other Comprehensive Income (Loss) | ||||||||||
| AXC | The former Harsco Industrial Air-X-Changers business | ||||||||||
| Board | The Board of Directors of Harsco Corporation | ||||||||||
| CARES Act | Coronavirus Aid, Relief, and Economic Security Act | ||||||||||
| CCIRs | Cross-currency interest rate swaps | ||||||||||
| CE | Harsco Clean Earth Segment | ||||||||||
| CERCLA | Comprehensive Environmental Response, Compensation, and Liability Act of 1980 | ||||||||||
| Clean Earth | CEHI Acquisition Corporation and Subsidiaries | ||||||||||
| COVID-19 | The COVID-19 coronavirus pandemic | ||||||||||
| Credit Agreement | Credit Agreement governing the Senior Secured Credit Facilities | ||||||||||
| DEA | United States Drug Enforcement Agency | ||||||||||
| 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 | ||||||||||
| HE | Harsco Environmental Segment | ||||||||||
| IBORs | Interbank offered rates | ||||||||||
| 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 | ||||||||||
| MEPP | Multiemployer pension plan | ||||||||||
| New Term Loan | $500 million term loan B raised in March 2021 under the Senior Secured Credit Facilities | ||||||||||
| NPPC | Net periodic pension cost (income) | ||||||||||
| OCI | Other Comprehensive Income (Loss) | ||||||||||
| PA DEP | Pennsylvania Department of Environmental Protection | ||||||||||
| PK | The former Harsco Industrial Patterson-Kelley business | ||||||||||
| RCRA | Resource Conservation and Recovery Act | ||||||||||
| Revolving Credit Facility | $700 million multi-year revolving credit facility under the Senior Secured Credit Facilities | ||||||||||
| ROU | Right of use | ||||||||||
| SBB | Federal railway system of Switzerland | ||||||||||
| SCE | Supreme Council for Environment in Bahrain | ||||||||||
| SEC | Securities and Exchange Commission | ||||||||||
| Senior Notes | $500 million 5.75% notes due July 31, 2027 | ||||||||||
| Senior Secured Credit Facilities | Primary source of borrowings comprised of the New Term Loan and the Revolving Credit Facility | ||||||||||
| SPRA | State Revenue Authorities from the State of São Paulo, Brazil | ||||||||||
| Term Loan A | $280 million term loan issued under the Senior Secured Credit Facilities, outstanding balance repaid on March 10, 2021 | ||||||||||
| Term Loan B | Term loan issued under the Senior Secured Credit Facilities, outstanding balance repaid on March 10, 2021 | ||||||||||
| 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. | ||||||||||
PART I
Item 1. Business.
Harsco Corporation (the "Company") is a diversified, multinationalmarket-leading, global provider of environmental solutions for industrial and specialty waste streams. Our two reportable business segments are Harsco Environmental and Harsco Clean Earth and we are a single-thesis environmental servicessolutions company that is a leader in the markets we serve.
We have worked in recent years to both transform our portfolio and engineered products servingstrengthen our financial results, and we have invested to achieve these objectives and to grow the Company. These investments include targeted organic investments, as well as mergers and acquisitions, that have accelerated our business transformation. The purchases of Clean Earth and ESOL, along with the sale of our energy-linked business in 2019 and our intention to sell our Rail business, have been significant strategic steps for our Company. As a result, 100% of our revenues from continuing operations in 2021 were generated from our two environmentally-focused segments. It also is important to note that these transactions have reduced the Company’s portfolio complexity and business cyclicality.
More broadly, we are committed to viewing every customer need through a sustainability lens. Our customers are increasingly expecting more customizable solutions that address environmental challenges within their industries. The Company is responding to this need by helping our customers build better businesses and, in a larger sense, a better environment. Our go-forward strategy is clear: to continue building a leading, global industries that are fundamental to worldwide economic growth and infrastructure development. environmental solutions company.
SEGMENT INFORMATION
The Company'sCompany’s current operations consist of threetwo reportable business segments: Harsco Metals & Minerals,Environmental and Harsco Clean Earth. Until 2019, the Company also reported the Harsco Industrial Segment composed of three businesses, which were sold in 2019 and 2020. In addition, until the fourth quarter of 2021, the Company reported the Harsco Rail Segment. The Company has announced its intention to sell the Rail business. Historical results for Harsco Industrial and Harsco Rail. Rail are accounted for as discontinued operations.
The Company has locationsreports segment information using the “management approach,” based on the way management organizes and reports the segments within the enterprise for making operating decisions, assessing performance and allocating capital. The Company’s reporting segments are identified based upon differences in products, services, and markets served. Financial information concerning segments and international and domestic operations is included in Note 16, Information by Segment and Geographic Area, in Part II, Item 8, “Financial Statements and Supplementary Data.”
Our revenues by business segment are as follows, and a further description of the products and services offered through these business segments is presented below.
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HARSCO ENVIRONMENTAL
BUSINESS OVERVIEW
Our Harsco Environmental Segment can trace its heritage back to the earliest efforts in industrial recycling and environmental resource management. Where others only saw waste and expense, we saw opportunity and value nearly 100 years ago. HE was founded upon market insights, grounded in respect for the environment, efficient use of resources, and optimism for the future.
Today, HE is a premier, global provider of environmental services and material processing to the global steel and metals industries. HE partners with its global customer base to deliver production-critical on-site operational support and resource recovery services, through management of our customers’ primary waste or byproduct streams. Our services support the metal manufacturing process, generating significant operational and financial efficiencies for our customers and allowing them to focus on their core steelmaking businesses.
HE serves 70 customers at approximately 150 sites in approximately 30 countries,countries. Our diversified customer base includes the largest steel producers in the regions where we operate, serving a mix of mini-mill and integrated operations. In recent years, HE has greatly extended its reach, signing new services contracts in bellwether emerging markets like India, and further strengthening our footprint in the Americas and Europe. As a result, our global portfolio is balanced and diversified, with foreign currency risk partially mitigated by the fact that our operating costs and revenues are regularly denominated in local currencies.
In addition to providing critical services to our customers, we provide zero-waste solutions for relevant waste or byproduct streams - an important component of our value proposition. We repurpose processed material for alternative uses and / or convert this material into viable products to be sold in other markets via our ecoproducts™ offerings and capabilities. Our ecoproductsTM portfolio includes road and roofing materials, abrasives, agriculture products and aggregates. This expertise is increasingly important to our customers as environmental regulations increase and the marketplace grows more averse to landfilling waste.
CUSTOMERS AND SERVICE CONTRACTS
We offer our customers a suite of more than 30 services, and our on-site work is performed under long-term contracts. These contracts typically include fixed fees or minimum billings, which de-risk our investment during periods of economic weakness, and variable fees often linked to the amount of metal produced or waste processed at a site. Our variable fees under contracts are, importantly, not linked to steel prices. Additionally, in recent years we have strengthened our contract terms and underwriting practices in an effort to earn a sufficient and timely return on our investments, as well as achieve other objectives. These measures, along with various improvement initiatives, have boosted our site portfolio results and driven more consistent performance across our operations.
Our contract renewal rates are high, with many customer relationships that span decades. Our largest customers today include ArcelorMittal, Tata, Gerdau, Tisco, and Hebei Iron and Steel Company. We serve most of our major customers at multiple sites, often under multiple contracts. The length of our customer relationships reflects our value proposition. Customers choose the Company to (1) achieve operational and financial efficiencies; (2) concentrate their efforts on metal manufacturing and supporting end-market product demands; (3) gain access to process innovations and technologies developed by the Company; and (4) leverage our downstream product applications and know-how. HE had one customer in each of the past three years that provided more than 10% of this segment's revenues, again under many long-term contracts at multiple sites.
On December 31, 2021, the Company's services contracts had estimated future revenues of $3.4 billion at current production levels, compared with $3.5 billion at December 31, 2020, with the decrease primarily due to the timing of contract expirations. These contract values provide the Company with a substantial base of anticipated long-term revenues. Approximately 21% of these revenues are expected to be recognized by December 31, 2022; approximately 39% of these revenues are expected to be recognized between January 1, 2023 and December 31, 2025; approximately 20% of these revenues are expected to be recognized between January 1, 2026 and December 31, 2028; and the remaining revenues are expected to be recognized thereafter. Estimated future revenues are exclusive of anticipated contract renewals, projected volume increases and ad-hoc services as well as future revenues from roofing granules, abrasives products, roadmaking materials, additives and specialty recovery technology services.
ON-SITE SERVICES
HE provides a broad range of services, most of which address our customers’ environmental challenges. In total, these services reduce both landfill waste and the carbon footprint of our customers’ sites. In 2021, on-site services represented approximately 86% of HE’s revenues. A summary of our most significant services is as follows:
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Resource Recovery, Metal Recycling and Slag Optimization
Resource recovery, metal recycling and slag optimization is the core component of our service offerings. We capture liquid steel waste or byproduct (slag) and transport it for cooling, treatment and conditioning. We then recover valuable metal from the waste-stream, which is returned to our customer in a form suitable for recycling through the customers’ manufacturing process. Finally, the residual non-metallic processed material is transformed into environmental products that create new and additional revenue streams to other customers.
Scrap Management
We manage customer scrap inventories and upgrade scrap by making it cleaner and denser. Improved scrap characteristics reduce electricity usage which, combined with the usage of recycled material, provides sustainability benefits to our customers.
Materials Handling and Logistics
We transport materials, including semi-finished and finished products, safely and efficiently for our customers. Our tracking technology also provides real-time analysis of material location, quantities and product quality.
Meltshop and Furnace Services
Meltshop and furnace services allow the molten metal production process to run smoothly and efficiently. These services include under-vessel cleaning and the removal of ladle slag (waste) and general melt shop debris.
ECOPRODUCTS™
HE creates value-added downstream products from industrial waste-streams. Our experience in manufacturing these products and successfully penetrating relevant end-markets is an important differentiator for the Company. These zero-waste solutions preserve our natural resources and reduce or eliminate landfill disposal. Ecoproducts in 2021 represented approximately 12% of HE’s revenues, and our major ecoproducts include the following:
Road Surfacing and Materials
Because of its natural shape and interlocking properties, steel slag holds many advantages when used in asphalt roadway surfaces, ranging from high skid resistance to better durability. The Company’s slag-based asphalt product, developed and sold as SteelPhalt™, maintains positive surface characteristics throughout the life of the road, allowing longer replacement intervals and lower maintenance costs. The Company also sells a slag aggregate that is a sustainable and cost-effective alternative to natural stone. This aggregate is often used as unbound road base material for secondary roads and sub-base material elsewhere.
Abrasives and Roofing Materials
Our Reed Minerals business is among the largest roofing granule suppliers in the U.S., partnering with the country's leading shingle manufacturers. Nearly 100 years ago, we pioneered a process of recycling coal combustion waste from power plants. Through the Company's proprietary process, we create premium quality roofing granules that are a critical raw material in asphalt roofing shingles.
Reed is also one of the largest U.S. manufacturers of abrasives, using coal as well as copper slag and crushed glass, for the surface preparation market. Our BLACK BEAUTY® and SURE/CUT™ abrasives are well-recognized within the industry and are used as blast material to remove paint, rust, and other coatings from surfaces, prior to applying a new finish.
Metallurgical Additives
The Company’s custom-designed steelmaking additives facilitate fluid slag formation in the steelmaking process, thus improving customer productivity and helping achieve the steel product specifications required for today’s premium applications.
Agriculture and Turf Products
We produce soil conditioners and fertilizers, principally from stainless steel slag that optimize crop yields and turf performance. CrossOver® and AgrowSil® products are our leading silicon, calcium and magnesium-based product brands, sold mainly in the Americas. These products are formulated to address nutrient deficiencies and toxicity issues in soil as well as to help plants withstand outside pressures and disease.
Cement Additives
Steel slag is naturally cementitious and commonly blended with other materials to produce environmentally-friendly, high-performing cement products. Cement made with slag aggregate can achieve permeabilities and other attributes that compare favorably to concrete made with conventional aggregates.
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ALTEK GROUP
Altek is a UK-based manufacturer of market-leading products that enable aluminum producers and recyclers to manage and extract value from critical waste streams, reduce waste generation, and improve operating productivity. The cost-efficient recovery of metal and other valuable materials is increasingly important to the aluminum industry. Altek’s products and technologies address this challenge, and its latest AluSalt® innovation offers customers a breakthrough technology that converts salt slag waste into valuable products, addressing one of the largest environmental concerns within the aluminum market.
GROWTH STRATEGY
We have identified attractive opportunities that meet our return thresholds to expand our service portfolio, and our pipeline of opportunities remains significant. Additionally, we have initiated efforts to expand our downstream products business and plan to continue investing in innovation to support our business sustainability.
A summary of our key growth initiatives is as follows:
•Further Penetrate Existing Sites. Given our broad services capabilities, we see potential for add-on services contracts at existing sites.
•New Sites. We continue to pursue new services contracts in certain markets, particularly in emerging economies where out-sourcing opportunities are significant because of increased environmental awareness or where steel consumption (production) is set to grow.
•Investment in Downstream Products. We see ample opportunities to expand certain products businesses, and our investment in new SteelPhalt™ (road materials) plants in Europe is a recent example.
•Innovation. We are at the forefront of innovation in our industry. Our innovation programs are specifically focused on helping our customers solve their most pressing environmental challenges amid ever-increasing regulation. This initiative includes developing new customer or industry solutions, either in-house or externally, and expanding the usage of technologies that already exist within our business.
COMPETITORS
HE competes principally with a small number of privately-held businesses for services outsourced by customers on a global basis. We also compete with numerous smaller, privately-held businesses in each of our regional markets and, to some degree, customers that may decide to perform certain services themselves.
We believe that HE differentiates itself from its competition through innovative technologies that support our service offerings, and through the operating expertise developed by sharing best practices across our global portfolio. Our safety practices and performance also support our business, as do our long-standing relationships and our downstream product solutions.
HARSCO CLEAN EARTH
BUSINESS OVERVIEW
In June 2019, the Company acquired Clean Earth, one of the largest specialty waste processing companies in the U.S. CE provides processing and beneficial reuse solutions for hazardous wastes and soil and dredged materials. In April 2020, the Company acquired 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. These acquisitions accelerated Harsco’s transformation into a global, market-leading, single-thesis environmental solutions platform.
Combined, CE now operates 19 RCRA Part B permitted TSDF facilities and supporting 10-day transfer facilities across the U.S., serving more than 90,000 customer locations while utilizing a fleet of over 700 vehicles. It also holds a portfolio of more than 500 critically-important permits, and the waste handled by CE is recycled or beneficially reused.
Specialty-waste permits have considerable value, and CE is positioned to take advantage of increasingly stringent regulations on the handling of this waste. These dynamics provide recurring revenues and support attractive underlying growth. CE also operates in a fragmented market where acquisition opportunities are likely to develop. As a result, we see CE as a platform for growth as we continue to expand our focus as an environmental solutions company.
INTEGRATION
By the end of 2022, the Company expects to integrate and fully realize identified synergies and profit improvement potential from the acquisition of ESOL. These improvements are anticipated through transportation and disposal efficiencies, procurement and operational savings, and commercial benefits.
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CUSTOMERS
CE provides low-cost, regulatory-compliant solutions to a diverse base of customers. These customers include waste generators in numerous industries, including chemicals, power, aerospace, medical, retail and metals, as well as integrated waste companies and brokers. CE also services federal, state and local governments as well as developers linked to large infrastructure and redevelopment projects. CE had one customer in 2021 and 2020 that provided more than 10% of this segment's revenues.
LINES OF BUSINESS
Hazardous Waste
CE provides testing, tracking, processing, recycling, and disposal services for hazardous waste and it operates 19 RCRA Part B permitted TSDF facilities and several waste water processing permits that enable the Company to process a variety of complex hazardous wastes, consisting of toxic, reactive and flammable materials such as industrial wastewater, manufacturing sludge, oily-mixtures, chemicals, pesticides, asbestos pharmaceutical waste, and landfill leachate with per- and polyfluoroalkyl substances ("PFAS"). The remaining facilities handle a limited number of other wastes, including electronics, batteries and light bulbs. These operations possess unique and differentiated processing technologies, such as applications for aerosol can and medical waste recycling. In 2021, this line of business represented approximately 82% of CE’s revenues.
Soil and Dredged Materials
CE processes approximately 3 million tons per year of contaminated soil at thirteen locations. These soils are contaminated with heavy metals, PCBs, pesticides, PFAS or other chemicals, and the related clean-up work is often the result of infrastructure improvements, private redevelopment, industrial site remediation and/or underground storage tank removal. CE treats and recycles this soil through various processes, after which the material is suitable for beneficial reuse as construction fill material or landfill capping. CE also operates one facility to treat dredged material, the sediment accumulated at the bottom of waterways that is removed for environmental (clean-up) or maintenance (maintain depth) purposes. After treatment, these materials are also beneficially reused as fill material. In 2021, this line of business represented approximately 18% of CE’s revenues.
OPERATIONS AND PERMITS
CE provides a suite of regulation-compliant treatment solutions for hazardous and non-hazardous wastes that can be tailored to
meet customer-specific requirements. The solutions include soil remediation and recycling, dredged material stabilization and beneficial reuse, hazardous and non-hazardous waste stabilization and solidification, fuel blending, management and recycling, battery and electronic waste recycling, and secure electronic data destruction.
Additionally, CE holds a portfolio of more than 500 process, treatment and operating permits, including the ones mentioned above. This permit portfolio is difficult to duplicate, making these permits valuable and critically-important assets in this heavily-regulated industry. CE’s ability to secure new permits or permit modifications for new waste streams or processes in the future remains an important growth lever for the business.
BACKLOG
The dollar value of CE's backlog is excluded due to the short-cycle nature of services provided and variability in revenues due to the timing of receipt and composition of materials.
GROWTH
Favorable underlying market dynamics, driven by increased regulation and a growing list of contaminants and hazardous materials, and investment are anticipated to fuel CE’s growth in the coming years. We also anticipate penetrating the market with new treatment solutions and expansion of existing technologies, including permit modifications and applications in new geographic markets. Lastly, CE is well-positioned to benefit from a positive outlook for maintenance and environmental dredging, and over time we expect acquisitions to be an important growth lever for CE. CE operates in a very fragmented, regionally-driven market, and as a result, we expect to pursue acquisition opportunities that may provide increased scale and/or new capabilities, along with synergies and attractive financial returns to the Company.
COMPETITION
Given the fragmented nature of the specialty waste industry, CE competes with numerous companies. Our larger peers include Clean Harbors, Heritage Environmental Services, and U.S. Ecology within the hazardous materials line of business, and GFL Environmental and Impact Environmental within the contaminated materials market. CE differentiates itself from competitors through service reliability and responsiveness, its diverse operating capabilities and regulatory compliant solutions, and the value it provides through providing environmentally superior solutions relative to other disposal alternatives in the regions where it operates.
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
We are committed to building a global, market-leading environmental solutions company that preserves our environment, adheres to ethical and responsible business practices, and supports our customers as they do the same. ESG is central to our business strategy and operations - our employees are inspired to develop innovative products and services that positively impact the environment and support the Company’s growth.
Our ESG focus areas include:
•Innovative Solutions. We help our customers solve their most pressing sustainability challenges by providing services and products that meet their environmental and business objectives. We deliver solutions for treating, recycling and repurposing materials across a wide range of customers, industries, and industrial by-products and specialty wastes, including steel, aluminum, soils, water, electronics, fuel, batteries and more.
•Thriving Environment. We strive to reduce or eliminate our global environmental impacts by providing the highest-quality environmental management in our operations and improving our environmental footprint through continuous improvement efforts. Our Corporate Environmental Policy outlines our environmental stewardship commitments. We also expect all third parties that do business with the Company to share our environmental standards.
•Safe Workplaces. Safety is of paramount importance in everything we do - our goal, each and every day, is that our people return home unharmed. We have built a best-in-class safety culture, and our cross-divisional Executive Safety Committee is responsible for implementing best practices with a goal of eliminating all incidents within our business activities.
•Inspired People. We invest in the career development of our employees, knowing that diversity of perspective, backgrounds and talents strengthens our business. We are also committed to building strong, sustainable communities where we live and work.
•Excellence in Corporate Governance. Excellence in corporate governance is fundamental to how we manage and operate the Company, from our everyday business to ESG issues. Our Code of Conduct and our Core Values lie at the center of all we do. Through these policies and guidelines, we have equipped every employee with the tools, training, and guidance to always do the right things, the right way. Oversight of our ESG practices is provided by the Governance Committee of the Company’s Board.
Further details on our ESG initiatives and accomplishments can be found in our latest ESG Report. This report, published in May of 2021, is our most comprehensive sustainability report to date and can be found on the Company’s website (www.harsco.com/sustainability) along with other related policies. Unless specifically stated herein, documents and information on the Company's website are not incorporated by reference into this document.
HARSCO BUSINESS SYSTEM ("HBS")
Our HBS is a shared set of processes that reflect and support our corporate strategy. These repeatable and replicable standards and practices are the hallmark of a high-performing company. There is intrinsic value in a common language, and a defined business system does away, in large part, with ambiguity about what constitutes success. The elements of our HBS are:
Environmental, Health & Safety; Continuous Improvement; Talent Development; Strategic Planning; and Acquisitions & Divestitures.
ACQUISITIONS AND DIVESTITURES
Given the Company’s evolution to a single-thesis environmental solutions company, acquisitions and divestitures have been an important element of our business strategy. These actions support the Company’s growth ambitions, while reducing business cyclicality and portfolio complexity.
In the fourth quarter of 2021, the Company concluded and announced that its Rail business was no longer aligned with our strategic direction, and it was the appropriate time to begin a formal evaluation of strategic alternatives with the intention to sell the business. As a result, Rail is reclassified as held for sale and reported as discontinued operations for all years presented.
In April 2020 the Company completed the acquisition of ESOL, from Stericycle, Inc., for $429.0 million in cash, inclusive of post-closing adjustments. ESOL is 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. ESOL's network includes 13 permitted TSDF facilities and 48 10-day transfer facilities serving more than 90,000 customer locations utilizing a fleet of more than 700 vehicles. The acquisition of ESOL furthered our transformation into a market-leading, single-thesis environmental solutions platform. The results of ESOL are included in CE.
In June 2019, the Company acquired Clean Earth from Compass Diversified Holdings for approximately $628 million in cash. This acquisition expanded the Company’s environmental service capabilities, while providing the Company entry into the
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specialty market, which possesses attractive organic growth and recurring revenues characteristics as well as a platform for future acquisition growth.
Also, in 2019, the Company completed the sale of the AXC business for approximately $600 million (July 2019) and the PK business (November 2019) for approximately $60 million in cash. In January 2020, the Company sold its IKG business for $85.0 million, including a note receivable with a face value of $40.0 million. These divestitures accelerated the transformation of the Company's portfolio of businesses into a global leading provider of environmental solutions and services, and significantly reduce the Company’s exposure to the cyclicality of the U.S. energy market.
SEASONALITY
The Company's businesses can be subject to seasonal fluctuations. Demand for services and solutions provided by HE are subject to seasonal changes related to weather conditions, inventory management through the steel-industry supply chain, and customer operating outages. The timing of these impacts varies by region, however, overall customer demand for HE across its global footprint tend to be strongest in the second quarter and third quarter of each year. CE, meanwhile, provides services that can also fluctuate seasonally with weather, construction activity, retail spending and municipal waste collection programs. As a result, demand for CE services tends to be weakest in the first and fourth quarters of each year.
Due to these factors, the Company’s revenues and earnings are usually higher during the second and third quarters of each year relative to the first and fourth quarter of the year. Additionally, the Company’s cash flows are also influenced by seasonality. The Company’s cash flow from operations has historically been higher in the second half of the year, compared with the first half, due to working capital management, receivable collections during the fourth quarter as a result of higher revenues in preceding quarters and the timing of certain cash payments, including for incentive compensation and pension contributions.
ENVIRONMENTAL COMPLIANCE
The Company is subject to various environmental regulations within its global operations and the scope of relevant environmental regulation expanded following the Company’s acquisition of Clean Earth and ESOL in 2019 and 2020, respectively. CE operates within an industry that is subject to stringent environmental regulations by federal, state and local authorities, which regulate the treatment and disposal of specialty waste. Facility and operating permits or approvals from these authorities are required to maintain operations. The nature of these permits varies by jurisdiction and are based on the activities at a particular site. These permits are generally difficult to obtain. This dynamic, along with increased regulation on the treatment and disposal of specialty waste, is beneficial to our CE business.
The most significant U.S. federal environmental regulation that impacts our business is the RCRA. RCRA created a cradle-to-grave system which governs the transportation, treatment, storage and disposal of hazardous waste. Under RCRA, each hazardous waste processing facility must maintain a RCRA permit and comply with defined operating practices. This legislation is administered by the U.S. Environmental Protection Agency ("EPA"), although its authority may be delegated to a State EPA with similar or more stringent environmental standards.
The Company is also subject to air and water quality control legislation in the U.S. and in foreign countries where the Company operates. The Clean Water Act regulates the discharge of pollutants into waterways and sewers in the U.S, and, where necessary, we obtain and must comply with permits to discharge wastewater from our facilities. Similarly, the Clean Air Act in the U.S. controls emissions of pollutants into the air and requires permits for certain emissions.
The Company regards compliance with all applicable environmental regulations as critical to its business. Historically, the Company has been able to renew and retain all required permits to maintain its operations and it has not experienced substantial difficulty complying with relevant environmental regulations. The Company also does not anticipate making any material capital expenditures to comply with, or improve, environmental performance in the future. While environmental regulations may increase or expand, we cannot predict the extent of this future environmental regulation, its related costs and the overall effect on the Company’s business.
For additional information regarding environmental matters see Note 12, Commitment and Contingencies, in Part II, Item 8, “Financial Statements and Supplementary Data.”
HUMAN CAPITAL RESOURCES
As of December 31, 2021, we had approximately 12,000 employees, excluding contingent workers, in more than 35 countries. The majority of these employees are represented by labor unions, through approximately 90 collective bargaining agreements.
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Our business relies on our ability to attract and retain talented employees. To attract and retain talent, we strive to create a diverse, inclusive and supportive workplace while providing opportunities for our employees to grow and develop in their careers.
Corporate Values
Across cultures, time zones and organizational lines, our values are the link that connects us all. As the cornerstone to our shared Company culture, these values reflect our overarching direction and purpose as a business:
•Employee Care - We are committed to safe, appealing work environments, market-competitive benefits programs and investment in personal development. We must treat our people as we would like to be treated ourselves, and we must attract and retain the very best talent throughout our organization.
•Passion for Winning - We are passionate about winning through creating exceptional value for our employees, customers and shareholders. Excellence is not an act, but a habit.
•Satisfy the Customer - We are engaged in the relentless pursuit of customer satisfaction by listening to the customers' needs, and consistently delivering value that exceeds their expectations.
•Inclusion - We strive to create an environment where all people are actively included. Our diverse global workforce is our most valuable asset. We must foster a climate in which every employee is encouraged to engage and dedicate his or her talents and experiences.
•Integrity - We demonstrate an uncompromising commitment to ethical principles. We act ethically and in the interest of the customers we serve. We treat others with dignity and respect, and value honesty above all else.
•Respect - We respect all individuals and their contributions. Harsco will not tolerate discrimination or harassment of any kind. Our employees have a right to a safe, respectful workplace. Our management has a mandate to provide it.
Health, Safety and Wellness
We are committed to the health, safety and wellness of our employees. We are passionate about establishing a culture of ownership and accountability for which all employees are responsible for safety. We evaluate our safety processes, programs and procedures to continuously improve our safety performance. We provide our employees and their families with access to a variety of health and wellness programs globally.
In response to the COVID-19 pandemic, we developed and implemented robust principals and standards, in consultation with infectious disease and public health experts, for what we consider to be in the best interest of our employees, as well as the communities in which we operate, to ensure we not only complied with governmental regulations, but created safe work environments for our employees.
Compensation and Benefits
We provide competitive compensation and benefits programs for our employees. In addition to salaries, these programs, which vary by employee level and by the country where the employees are located, may include, among other items, bonuses, stock awards, retirement programs including pension and savings plans, health savings and flexible spending accounts, paid time off, paid parental leave, disability programs, flexible work schedules and employee assistance programs.
Diversity, Equity, Engagement and Inclusion
Diversity, equity, engagement, and inclusion (“DEE&I”) is an integral part of the Company’s values and processes that support recruitment, hiring, training, retention and advancement.In an effort to advance the Company’s commitment to DEE&I, the Company has taken the following steps in 2021:
•Established a DEE&I Council which is co-chaired by our CEO and Senior Vice President & Chief Human Resources Officer and comprised of 10 cross-functional leaders from each of our business units. The DEE&I Council is accountable for directly shaping and promoting the Company’s DEE&I strategy and subsequent key initiatives.
•Launched its first-ever Employee Resource Group - Women of Harsco - whose mission is to promote the advancement of women across the Company through personal and professional development, mentorship, and empowerment.
•Tied key management's incentive compensation to the achievement of specific DEE&I strategic goals.
Talent Development and Succession
We believe our development processes ensure continuity of leadership over the long term. Thus annually we undertake a talent review process to access the organizational capabilities required to execute our strategy, create tailored development plans and understand the depth of our succession preparedness. Our objective is to build the readiness of various talent pools within the organization in order to select and promote key talent.In addition, we continue to invest in our employees through technical training, professional development and skills upgrade throughout the year.
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CORPORATE INFORMATION
The Company was incorporated in 1956. At December 31, 2018, the Company had approximately 9,900 employees.
The Company'sCompany’s global headquarters and executive offices are located at 350 Poplar Church Road, Camp Hill, Pennsylvania 17011, and the Company'sits main telephone number is (717) 763-7064. 717-763-7064.
The Company'sCompany’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the Securities and Exchange Commission (the "SEC")SEC under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available on the Company'sCompany’s website at www.harsco.cominvestors.harsco.com as soon as reasonably practicable after such reports are electronically filed with the SEC. The information posted on the Company's website is not incorporated into the Company's SEC filings. Additionally, the SEC maintains a website that contains reports, proxy and other information regarding issuers that electronically file with the SEC at www.sec.gov.
AVAILABLE INFORMATION
Our website address is www.harsco.com. Copies of its segments are among the global market leaders in their respective sectors. However, the Company competes with a rangeour key Corporate governance documents, such as our Code of global, regional and local businesses of varying size and scope, and its competitive environment is complex given the diversity of services and products provided and the global breadth of markets served.
“Our Company” page. The Company has become subject to, as have others, stringent air and water quality control legislation. In general, the Company has not experienced substantial difficulty complying with these environmental regulations and does not anticipate making any material capital expenditures for environmental control facilities. While the Company expects that environmental regulations may expand, and that expenditures for air and water quality control will continue, the Company cannot predict the effect on its business of such expanded regulations. For additional information regarding environmental matters see Note 12, Commitments and Contingencies, in Part II, Item 8, "Financial Statements and Supplementary Data."
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Item 1A. Risk Factors.
Set forth below are risks and uncertainties that could materially and adversely affect the Company's results of operations, financial condition, liquidity and cash flows. The following discussion of risks contains forward-looking statements, and the risks set forth below are not the only risks faced by the Company. The Company's business operations could also be affected by other factors not presently known to the Company or factors that the Company currently does not consider to be material.
STRATEGIC AND OPERATIONAL RISKS
TheCompanymay adversely impact demand fornotbeabletosuccessfullyintegratetheESOLandCleanEarthbusinesses.
On April 6, 2020 the Company's products and services,Company completed the acquisition of ESOL. Prior to the acquisition, ESOL was operated as a division of Stericycle. The success of the acquisition, as well as the Company’s ability to realize its anticipated benefits, depends in large part on the ability to successfully integrate the ESOL and Clean Earth businesses and improve the operating results of the Company's customers to meet their obligationsESOL business. The Company achieved significant integration milestones since the acquisition, however the integration remains ongoing, partially due to the difficulties integrating businesses during the ongoing pandemic. This integration is complex and time consuming, and the failure of successfully integrating may result in the Company not fully achieving the anticipated benefits of the ESOL acquisition. Potential difficulties the Company may encounter as it looks to complete the integration process include (i) the inability to successfully integrate the transportation network of the former ESOL business with the Clean Earth facilities; (ii) complexities and unanticipated issues associated with integrating the two businesses’ complex systems, technologies and operating procedures; and (iii) making any necessary modifications to the internal control environment.
Although we announced our intention to conduct a process for the divestiture of our Rail division, we may be unable to complete a transaction on favorable terms or at all and our pursuit of a timely basis.divestiture could adversely affect our businesses, results of operations and financial condition.
The seasonality of the Company's business may cause quarterly results to fluctuate.
The majority of the Company's cash flows provided by operations has historically been generated in the second half of the year. This is a result of normally higher income during the second halfand third quarters of the year, as the Company's business tends to follow seasonal patterns. If the Company is unable to successfully manage the cash flow and other effects of seasonality on the business, its results of operations may suffer.
Customerconcentrationandrelatedcreditandcommercialrisks, may adversely impacttogether with the Company's resultslong-term nature of contracts,mayadverselyimpacttheCompany'sresultsofoperations,financialconditionand cashflows.
For the year ended December 31, 2018,2021, the Company’s top five customers in the Harsco Metals & MineralsEnvironmental Segment accounted for approximately 30%32% of revenues in that Segment and 19%18% of the Company’s consolidated revenues. For the year ended December 31, 2021, the Company’s top five customers in the Clean Earth Segment accounted for approximately 29% of the revenues in that Segment and 12% of the Company’s consolidated revenues. The Company routinely enters into multiple contracts with its top customers and many vary in contractof varying length and scope. Disagreements between the parties can arise as a result of the scope, nature and varying degree of relationship between the Company and these customers.customers and can result in disagreements between the Company and a customer that could impact multiple regions within the Company’s business.
The Harsco Metals & MineralsClean Earth Segment has several large customers and ifmay enter into a largelong-term contract with a customer were to experience financial difficulty or file for bankruptcy or receivership protection, itcovering multiple regions in the United States. A dispute with a customer in one region in the United States could adversely impact the Company's results of operations, cash flows and asset valuations.
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another region. The Company routinely enters into multiple contracts with customers, many of which can be long-term contracts. Under long-term contracts, the CompanyHarsco Environmental Segment may incur capital expenditures or other costs at the beginning of thea long-term contract that it expects to recoup through the life of the contract. Some of these contracts provide for advance payments to assist the Company in covering these costs and expenses. A dispute with a customer during the life of a long-term contract could impact the ability of the Company to receive payments or otherwise recoup incurred costs and expenses.
The industries in which the Company operates are highly competitive:competitive. Some examples are as follows:
•The Harsco Metals & MineralsEnvironmental Segment is sustained mainly through contract renewals and new contract signings. The Company may be unable to renew contracts at historical price levels or to obtain additional contracts at historical rates as a result of competition. If the Company is unable to renew its contracts at the historical rates or renewals are made at reduced prices, or if its customers terminate their contracts, revenue and results of operations may decline.
•Like the Harsco Environmental Segment, the Harsco Clean Earth Segment is sustained primarily through contract renewals and new contract signings. The Harsco IndustrialClean Earth Segment faces competition from companies with greater resources than the Company, with closer geographic proximity to waste sites, with captive end disposal assets, and Harscowho may provide service offerings that we do not provide. In order to compete, the Company may be required to reduce price levels below historical price levels or obtain additional contracts at rates lower than historical rates.
•The Rail Segments competebusiness competes with companies that manufacture similar products both
internationally and domestically. Certain international competitors export their products into the U.S. and sell them at lower prices, which can be the result of lower labor costs and government subsidies for exports. In addition, certain competitors may from time to time sell their products below their cost of production in an attempt to increase their market share. Such practices may limit the prices the CompanyRail business can charge for its products and services. Unfavorable foreign exchange rates can also adversely impact the Company'sRail business’s ability to match the prices charged by international competitors. If the CompanyRail business is unable to match the prices charged by competitors, it may lose customers.
The Harsco Clean Earth Segment's facilities operate using permits and licenses issued by various regulatory bodies at various local, state and federal government levels. Failure to variable interest rates, including through interest rate swapsobtain permits and licenses necessary to operate these facilities on a timely basis or failure to renew or maintain compliance with its permits, licenses and site lease agreements on a timely basis could prevent or restrict the Company's ability to provide certain services, resulting in a material adverse effect on its business. There can be no assurance that the Company has put into place, its debt service obligations may increase even though the amount borrowed remains the same, and in turn, its results of operations and financial condition may be negatively impacted.
Higher than expected claims under insurance policies, under which the Company retains a portion of the risk, could adversely impact results of operations and cash flows.
The Company retains a significant portion of the risk for property, workers' compensation, U.K. employers' liability, automobile and general and product liability losses. Reserves have been recorded that 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 are higher than those projected by management, an increase to the Company's insurance reserves may be required and would be recorded as a charge to income in the period the need for the change was determined.
The Harsco Clean Earth Segment's insurance policies do not cover all losses, costs, or decreasesliabilities that it may experience.
The Harsco Clean Earth Segment maintains insurance coverage, but these policies do not cover all of its potential losses, costs, or liabilities. The Company could suffer losses for uninsurable or uninsured risks or in amounts in excess of its existing insurance coverage, which would significantly affect its financial performance. For example, the Company's pollution legal liability insurance excludes costs related to fines, penalties, or assessments. The Company's insurance policies also have deductibles and self-retention limits that could expose it to significant financial expense. The Company’s ability to obtain and maintain adequate insurance may be affected by conditions in the insurance market over which it has no control. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on the Company’s business, financial condition, and results of operations. In addition, the Harsco Clean Earth Segment’s business requires that it maintain various types of insurance. If such insurance is not available or not available on economically acceptable terms, the Clean Earth Segment’s and our businesses could be materially and adversely affected.
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The waste management industry, in which the Harsco Clean Earth Segment is a participant, is subject to various economic, business, and regulatory risks.
The future operating results of the Harsco Clean Earth Segment may be affected by such factors as its ability to utilize its facilities and workforce profitably in the face of intense price competition, maintain or increase market share during periods of economic contraction or industry consolidation, realize benefits from cost reduction programs, invest in new technologies for treatment of various waste streams, generate incremental volumes of waste to be handled through the Harsco Clean Earth Segment’s facilities from existing and acquired sales offices and service centers, obtain sufficient volumes of waste at prices which produce revenue sufficient to offset the operating costs of its facilities and minimize downtime and disruptions of operations.
Outdoor construction, which may be limited due to colder weather, and dredging, which may be limited due to environmental restrictions in certain waterways in the Northeastern United States, can be cyclical in nature. If those cyclical industries slow significantly, the business that the Harsco Clean Earth Segment receives from them would likely decrease.
IftheHarscoCleanEarthSegmentfailstocomplywithapplicableenvironmentallawsandregulations,itsbusinesscouldbeadverselyaffected.
The regulatory framework governing the Harsco Clean Earth Segment's business is extensive. The Company could be held liable if its operations cause contamination of air, groundwater or soil or expose its employees or the public to contamination. The Company may be held liable for damage caused by conditions that existed before it acquired the assets, business or operations involved. Also, it may be liable if it generates, transports or arranges for the transportation, disposal or treatment of hazardous substances that cause environmental contamination at facilities operated by others, or if a predecessor generated, transported, or made such arrangements and the Company is a successor. Liability for environmental damage could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. The Company may also be held liable for the mishandling of waste streams resulting from the misrepresentations by a customer as to the nature of such waste streams.
Stringent regulations of federal, state and local governments have a substantial impact on the Harsco Clean Earth Segment’s transportation, treatment, storage, disposal and beneficial use activities. Many complex laws, rules, orders and regulatory interpretations govern environmental protection, health, safety, noise, visual impact, odor, land use, zoning, transportation and related matters. The Company also may be subject to laws concerning the protection of certain marine and bird species, their habitats, and wetlands. It may incur substantial costs in order to conduct its operations in compliance with these environmental laws and regulations. Changes in environmental laws or regulations or changes in the enforcement or interpretation of existing laws, regulations or permitted activities may require the Company to make significant capital or other expenditures, to modify existing operating licenses or permits, or obtain additional approvals or limit operations. New environmental laws or regulations that raise compliance standards or require changes in operating practices or technology may impose significant costs and/or limit the Company’s operations.
The Harsco Clean Earth Segment’s revenue is primarily generated as a result of requirements imposed on its customers under federal, state and local laws and regulations to protect public health and the environment. If requirements to comply with laws and regulations governing management of contaminated soils, dredge material, and hazardous wastes were relaxed or less vigorously enforced at the federal, state and local levels, demand for the Harsco Clean Earth Segment’s services could materially decrease and the Company's revenues and earnings could be reduced.
Increases in purchase prices (or decreases in selling prices) or availability of steel or other materials and commodities may affect the Company's profitability.
The profitability of the Company's manufactured products and services may be affected by changing purchase prices of raw material, including steel and other materials and commodities.commodities, supplier costs or own labor costs. If raw material costs, associated with the Company's manufactured productssupplier or labor increase and the costs cannot be transferred to the Company's customers, results of operations would be adversely affected. Additionally, decreased availability of steel or other materials or services could affect the Company's ability to produce manufacturedprovide products and services in a timely manner. If the Company cannot obtain the necessary raw materials, for its manufactured products, then revenues results of operations and cash flows could be adversely affected.
Certain services performed by the Harsco Metals & MineralsEnvironmental Segment result in the recovery, processing and sale of recovered metals and minerals and other high-value metal by-productsbyproducts to its customers. The selling price of the by-productsbyproducts material is market-based and varies based upon the current fair value of its components. Therefore, the revenue amounts generated from the sale of such by-productsbyproducts material vary based upon the fair value of the commodity components being sold.
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The success of the Company's strategic ventures depends on the satisfactory performance by strategic venture partners of their strategic venture obligations.
The Company enters into various strategic ventures as part of its strategic growth initiatives as well as to comply with local laws. Differences in opinions or views between strategic venture partners can result in delayed decision-making or failure to agree on material issues which could adversely affect the business and operations of the venture. From time to time, in order to establish or preserve a relationship, or to better ensure venture success, the Company may accept risks or responsibilities for the strategic venture that are not necessarily proportionate with the reward it expects to receive. The success of these and other strategic ventures also depends, in large part, on the satisfactory performance by the Company's strategic venture partners of their strategic venture obligations, including their obligation to commit working capital, equity or credit support as required by the strategic venture and to support their indemnification and other contractual obligations.
If the Company's strategic venture partners fail to satisfactorily perform their strategic venture obligations as a result of financial or other difficulties, the strategic venture may be unable to adequately perform or deliver its contracted services. Under these circumstances, the Company may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profits or, in some cases, increased liabilities or significant losses for the Company with respect to the strategic venture. In addition, although the Company generally performs due diligence with regard to potential strategic partners or ventures, a failure by a strategic venture partner to comply with applicable laws, rules or regulations could negatively impact its business and, in the case of government contracts, could result in fines, penalties, suspension or even debarment. Unexpected strategic venture developments could have a material adverse effect on results of operations, financial condition and cash flows.
If the Company is subjectfails to various environmental laws, and the success of existing or future environmental claims againstmaintain safe worksites, it could adversely impact the Company's results of operations and cash flows.
The Company is currently involved in a number of environmental remediation investigationsoperates at facilities that may be inherently dangerous workplaces. The Harsco Clean Earth Segment operates facilities that accept, process and/or treat materials provided by its customers. The Harsco Environmental Segment has operations at customers' steel producing sites, which often times involve extreme conditions. If serious accidents or fatalities occur or its safety record was to deteriorate, it may be ineligible to bid on certain work, and cleanupsexisting service arrangements could be terminated. Further, regulatory changes implemented by the Occupational Safety and along with other companies, has been identified as a "potentially responsible party" for certain byproduct disposal sites under the federal "Superfund" law. At several sites, the Company is currently conducting environmental remediation, and it is probable that the Company will agree to make payments toward funding certain other of these remediation activities. It also is possible that some of these matters will be decided unfavorably to the Company and that other sites requiring remediation will be identified. Each of these matters is subject to various uncertainties, and financial exposure is dependent upon such factors as:
The Company maintains a workforce based upon current and anticipated workload.If the Company does not receive future contract awards or if these awards are delayed, significant cost may result that could have a material adverse effect on results of operations, financial condition, liquidity and cash flows.
The Company's estimates of future performance depend on, among other matters, whether and when the Company will receive certain new contract awards, including the extent to which the Company utilizes its workforce. The rate at which the Company utilizes its workforce is impacted by a variety of factors, including:
•the ability to manage attrition;
•the ability to forecast the need for services, which allows the Company to maintain an appropriately sized workforce;
•the ability to transition employees from completed projects to new projects or between segments; and
•the need to devote resources to non-revenue generating activities such as training or business development.
While the Company's estimates are based upon good faith judgment, these estimates can be unreliable and may frequently change based on newly available information. In the case of large-scale domestic and international projects where timing is often uncertain, it is particularly difficult to predict whether and when the Company will receive a contract award. The uncertainty of contract award timing can present difficulties in matching the Company's workforce size with contract needs. If an expected contract award is delayed or not received, the Company could incur cost resulting from reductions in staff or redundancy of facilities or equipment that could have a material adverse effect on results of operations, financial condition, liquidity and cash flows.
A significant portion of the Company's employees are represented by labor unions in a number of countries under various collective bargaining agreements with varying durations and expiration dates. There can be no assurance that any current or future issues with the Company's employees will be resolved or that the Company will not encounter future strikes, work stoppages or other types of conflicts with labor unions or the Company's employees. The Company may not be able to satisfactorily renegotiate collective bargaining agreements in the U.S. and other countries when they expire. If the Company fails to renegotiate existing collective bargaining agreements, the Company could encounter strikes or work stoppages or other types of conflicts with labor unions. In addition, existing collective bargaining agreements may not prevent a strike or work
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stoppage at the Company's facilities in the future. The Company may also be subject to general country strikes or work stoppages unrelated to the Company's business or collective bargaining agreements. A work stoppage or other limitations on production at the Company's facilities for any reason could have an adverse effect on the Company's business, results of operations, financial condition and cash flows. In addition, various privacy and security laws govern the protection of this information and breaches in security could result in litigation, regulatory action, potential liability and the costs and operational consequences of implementing further data protection measures. For example, the EU’s GDPR extends the scopemany of the EU data protection laws to all companies processing dataCompany's customers and suppliers have unionized work forces, and may experience a lack of EU residents, regardlessqualified employees. Strikes or work stoppages, as well as labor shortages, experienced by the Company's customers or suppliers could have an adverse effect on the Company's business and supply chain, results of the company’s location.operations and financial condition.
The Company's intellectual property portfolio may not prevent competitors from independently developing similar or duplicative products and services.
The Company's patents and other intellectual property may not prevent competitors from independently developing or selling similar or duplicative products and services, and there can be no assurance that the resources invested by the Company to protect the Company's intellectual property will be sufficient or that the Company's intellectual property portfolio will adequately deter misappropriation or improper use of the Company's technology. The Company could also face competition in some countries where the Company has not protected its intellectual property portfolio. The Company may also face attempts to gain unauthorized access to the Company's information technology systems or products for the purpose of improperly acquiring trade secrets or confidential business information. The theft or unauthorized use or publication of the Company's trade secrets and other confidential business information as a result of such an incident could adversely affect the Company's competitive position and the value of the Company's investment in research and development. The Company may be unable to secure or retain ownership or rights to use data in certain software analytics or services offerings. In addition, the Company may be the target of aggressive and opportunistic enforcement of patents by third parties, including non-practicing entities. Regardless of the merit of such claims, responding to infringement claims can be expensive and time-consuming. If the Company is found to infringe any third-party rights, the Company could be required to pay substantial damages or could be enjoined from offering some of the Company's products and services. Also, there can be no assurances that the Company will be able to obtain or renew from third parties the licenses needed in the future, and there is no assurance that such licenses can be obtained on reasonable terms.
IncreasedinformationtechnologysecuritythreatsandmoresophisticatedcomputercrimeposearisktotheCompany's and its vendors,systems,networks, productsand services.
The Company relies upon information technology systems and networks in connection with a variety of business activities, some of which are managed by third parties (which we refer to collectively as our “associated third parties”). Additionally, the Company and its associated third parties collect and store data that is of a sensitive nature, which may include names and addresses, bank account information, and other types of personal information or other labor matterssensitive business information. The secure operation of these information technology systems and networks, and the processing and maintenance of this data is critical to the Company's business operations and strategy.
Threats to our systems and our associated third parties' systems can derive from human error, fraud, or malice on the part of employees or third parties, or may result from accidental technological failure. Globally these types of threats have increased in number and severity and it is expected that these trends will continue. These threats pose a risk to the security of the Company's systems and networks and the confidentiality, availability and integrity of the Company's data. Should an attack on the Company's or our associated third parties’ information technology systems and networks succeed, it could expose the Company and the Company's employees, customers, dealers and suppliers to misuse of information or systems, the compromising of confidential information, manipulation and destruction of data, production downtimes and operations disruptions. In 2021 an associated third party was the target of a cybersecurity attack. The attack did not result in the theft of personally identifiable information of any employees, but it resulted in logistical challenges with respect to internal reporting systems.
The occurrence of any of these events could adversely affect the Company's reputation, competitive position, business, results of operations and financial results.cash flows. While we have cybersecurity insurance related to a breach event covering certain expenses, damages and claims arising from such incidents may not be covered, or may exceed the amount of any insurance available.
In addition, various privacy and security laws govern the protection of this information and breaches in security could result in litigation, regulatory action, potential liability and the costs and operational consequences of implementing further data protection measures. For example, the European Union's ("EU") General Data Protection Regulation ("GDPR") extends the scope of the Company's employeesEU data protection laws to all companies processing data of EU residents, regardless of the company’s location. The potential compliance costs with or imposed by new or existing regulations and policies that are represented by labor unions inapplicable to us could have a numbermaterial impact on our results of countries under various collective bargaining agreements with varying durationsoperations.
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MACROECONOMIC AND INDUSTRY RISKS
Outbreaks of disease and expiration dates. There can be no assurance that any current or future issues withhealth epidemics, such as COVID-19, have had, and could continue to have, a negative impact on the Company's employeesbusiness revenues, financial position, results of operations and/or stock price.
COVID-19, and the actions taken by governments, businesses and individuals in response to the pandemic have resulted in, and continue to result in, challenges for the Company. Travel to and from most countries has been suspended or restricted during different stages of the pandemic by air carriers and foreign governments, and extended shutdowns of certain businesses and other activities disrupting global supply chains have occurred. Additionally, we have experienced temporary site closures and other supply chain disruptions because of COVID-19.
COVID-19 continues to impact worldwide economic activity differently in various regions, and will be resolved orcontinue to pose the risk that the Company will not encounter future strikes, work stoppagesor its employees, contractors, suppliers, customers and other business partners may be prevented from conducting certain business activities for an indefinite period of time, including shutdowns that may be requested or mandated by governmental authorities or otherwise elected by the Company or its customers as a preventive measure to limit the spread of coronavirus disease. In addition, mandated government authority measures or other types of conflicts with labor unions or the Company's employees. The Companymeasures elected by companies as preventative measures may not be able to satisfactorily renegotiate collective bargaining agreements in the U.S. and other countries when they expire. If the Company fails to renegotiate existing collective bargaining agreements, the Company could encounter strikes or work stoppages or other types of conflicts with labor unions. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at the Company's facilities in the future. The Company may also be subject to general country strikes or work stoppages unrelatedlead to the Company's business or collective bargaining agreements. A work stoppagecustomers being unable to complete purchases or other limitations on production at the Company's facilities for any reason couldactivities.
COVID-19 may continue have an adverse effect on the Company's operations and, given the uncertainty around the extent and timing of the potential future spread or mitigation and around the imposition or relaxation of protective measures, the Company cannot reasonably estimate the impact to the Company's future results of operations, cash flows, financial condition or stock price.
Negative economic conditions may adversely impact demand for the Company's products and services, as well as the ability of the Company's customers to meet their obligations to the Company on a timely basis.
Negative economic conditions, including the tightening of credit in financial markets, can lead businesses to postpone spending, which may impact the Company's customers, causing them to cancel, decrease or delay their existing and future orders with the Company. In addition, economic conditions may impact the Company's customers by either causing them to close locations serviced by the Harsco Environmental Segment or causing their financial condition to deteriorate to a point where they are unable to meet their obligations to the Company on a timely basis. One or more of these events could adversely impact the Company's operating results and ability to collect its receivables.
Cyclical industry and economic conditions may adversely affect the Company's businesses.
The Company's businesses are subject to general economic slowdowns and cyclical conditions in each of the industries served. Examples are:
•The Harsco Environmental Segment may be adversely impacted by prolonged slowdowns in steel mill production, excess production capacity, bankruptcy or receivership of steel producers and changes in outsourcing practices;
•The resource recovery and slag optimization technologies business of the Harsco Environmental Segment can also be adversely impacted by prolonged slowdowns in customer production or a reduction in the selling prices of its materials, which are in some cases market-based and vary based upon the current fair value of the components being sold. Therefore, the revenue generated from the sale of such recycled materials varies based upon the fair value of the commodity components being sold;
•The abrasives and roofing materials business of the Harsco Environmental Segment may be adversely impacted by economic conditions that slow the rate of residential roof replacement, or by slowdowns in the industrial and infrastructure refurbishment industries;
•Prolonged slowdowns may result in a decrease in the amount of waste generated, resulting is less hazardous waste collected by the Clean Earth Segment; and
•Capital constraints and increased borrowing costs may also adversely impact the financial position and operations of the Company's customers across all business segments.
Furthermore, utilization of deferred tax assets is ultimately dependent on generating sufficient income in future periods to ensure recovery of those assets. The cyclicality of the Company's end markets and adverse economic conditions may negatively impact the future income levels that are necessary for the utilization of deferred tax assets.
Exchange rate fluctuations may adversely impact the Company's business.
Fluctuations in foreign exchange rates between the U.S. dollar and the approximately 25 other currencies in which the Company currently conducts business may adversely impact the Company's results of operations in any given fiscal period. The Company’s principal foreign currency exposures are in the EU, the U.K., China and Brazil. Given the structure of the
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Company's operations, an increase in the value of the U.S. dollar relative to the foreign currencies in which the Company earns its revenues generally has a negative impact on the translated amounts of the assets and liabilities, results of operations and cash flows. The Company's foreign currency exposures increase the risk of volatility in its financial position, results of operations and cash flows. If currencies in the below regions change materially in relation to the U.S. dollar, the Company's financial position, results of operations, or cash flows may be materially affected.
Compared with the corresponding full-year period in 2020, the average value of major currencies changed as follows in relation to the U.S. dollar during the full-year 2021, impacting the Company's revenues and income:
•British pound sterling strengthened by 7%;
•Euro strengthened by 3%;
•Chinese yuan strengthened by 7%; and
•Brazilian real weakened by 4%
Compared with exchange rates at December 31, 2020, the value of major currencies at December 31, 2021 changed as follows:
•British pound sterling weakened by 1%;
•Euro weakened by 7%;
•Chinese yuan strengthened by 3%; and
•Brazilian real weakened by 7%
To illustrate the effect of foreign exchange rate changes in certain key markets of the Company, in 2021 revenues would have been approximately 1% or $21 million lower and operating income would have been less than 1% or less than $1 million higher if the average exchange rates for 2020 were utilized. In a similar comparison for 2020 revenues would have been 2% or approximately $24 million higher and operating income would have been approximately $3.9 million higher if the average exchange rates for 2019 were utilized.
Currency changes also result in assets and liabilities denominated in local currencies being translated into U.S. dollars at different amounts than at the prior period end. Generally, if the U.S. dollar weakens in relation to currencies in countries in which the Company does business, the translated amounts of the related assets, liabilities, and therefore stockholders' equity, would increase. Conversely, if the U.S. dollar strengthens in relation to currencies in countries in which the Company does business, the translated amounts of the related assets, liabilities, and therefore stockholders' equity, would decrease.
Although the Company engages in foreign currency exchange forward contracts and other hedging strategies to mitigate foreign exchange transactional risks, hedging strategies may not be successful or may fail to completely offset these risks. In addition, competitive conditions in the Company's manufacturing businesses may limit the Company's ability to increase product prices in the face of adverse currency movement. Sales of products manufactured in the U.S. for the domestic and export markets may be affected by the value of the U.S. dollar relative to other currencies. Any long-term strengthening of the U.S. dollar could depress demand for these products and reduce sales. Conversely, any long-term weakening of the U.S. dollar could improve demand for these products and increase sales.
LEGAL AND REGULATORY RISKS
TheCompany'sglobalpresencesubjectsittoavarietyofrisksarisingfromdoingbusinessinternationally.
The Company operates in approximately 30 countries, generating 45% of its revenues outside of the U.S. (based on location of the facility generating the revenue) for the year ended December 31, 2021. In addition, as of December 31, 2021, approximately 59% of the Company’s property, plant and equipment is located outside of the U.S. The Company's global footprint exposes it to a variety of risks that may adversely affect the Company's results of operations, financial condition, liquidity and cash flows. These include, but may not be limited to, the following:
•periodic economic downturns in the countries in which the Company does business;
•complexities around changes in the still developing relationship between the U.K. and the EU arising out of the U.K.’s withdrawal from the EU;
•imposition of or increases in currency exchange controls and hard currency shortages;
•customs matters and changes in trade policy or tariff regulations;
•changes in regulatory requirements in the countries in which the Company does business;
•changes in tax regulations, higher tax rates in certain jurisdictions and potentially adverse tax consequences including restrictions on repatriating earnings, adverse tax withholding requirements and "double taxation";
•longer payment cycles and difficulty in collecting accounts receivable;
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•complexities in complying with a variety of U.S. and foreign government laws, controls and regulations;
•political, economic and social instability, civil and political unrest, terrorist actions and armed hostilities in the regions or countries in which, or adjacent to which, the Company does business;
•increasingly complex laws and regulations concerning privacy and data security, including the EU's GDPR;
•inflation rates in the countries in which the Company does business;
•complying with complex labor laws in foreign jurisdictions;
•laws in various international jurisdictions that limit the right and ability of subsidiaries to pay dividends and remit earnings to affiliated companies unless specified conditions are met;
•sovereign risk related to international governments, including, but not limited to, governments stopping interest payments or repudiating their debt, nationalizing private businesses or altering foreign exchange regulations;
•uncertainties arising from local business practices, cultural considerations and international political and trade tensions; and
•public health issues or other calamities impacting regions or countries in which the Company operates, including travel to and/or imports or exports to or from such regions or countries.
If the Company is unable to successfully manage the risks associated with its global business, the Company's results of operations, financial condition, liquidity and cash flows may be negatively impacted.
Due to the international nature of the Company's business, the Company could be adversely affected by violations of certain laws.
The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. The FCPA also imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which, among other things, are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off the books” slush funds from which improper payments can be made. The Company may be unsuccessful in its efforts to prevent reckless or criminal acts by employees or agents and may be exposed to liability due to pre-acquisition conduct of employees or agents of businesses or operations the Company may acquire. Violations of these laws, or allegations of such violations, could disrupt the Company’s operations, require significant management involvement and have a material adverse effect on the Company’s results of operations, financial condition and cash flows. In addition, manyIf the Company is found to be liable for violations of these laws (either due to its own acts, out of inadvertence or due to the acts or inadvertence of others), the Company could also be subject to severe criminal or civil penalties or other sanctions; disgorgement; further changes or enhancements to its procedures, policies and controls; personnel changes and other remedial actions.
Furthermore, the Company is subject to the export controls and economic embargo rules and regulations of the Company's customersU.S., including the Export Administration Regulations and suppliers have unionized work forces. Strikes or work stoppages experiencedtrade sanctions against embargoed countries, which are administered by the Company's customersOffice of Foreign Asset Control within the Department of Treasury, as well as other laws and regulations administered by the Department of Commerce. These regulations limit the Company’s ability to market, sell, distribute or suppliers could have an adverse effectotherwise transfer its
products to prohibited countries or persons. Failure to comply with these rules and regulations may result in substantial civil and criminal penalties, including fines and disgorgement of profits, the imposition of a court-appointed monitor, the denial of export privileges and debarment from participation in U.S. Government contracts.
A negative outcome on personal injury claims against the Company's business,Company may adversely impact results of operations and financial condition.
The Company’s ongoing operations are subject to extensive laws, regulations, rules and ordinances relating to safety, health and environmental matters that impose significant costs and liabilities on the Company, and future laws and governmental standards could increase these costs and liabilities.
17
The Company is subject to a variety of international, federal, state and local laws and governmental regulations, rules and ordinances regulating the use of certain materials contained in its products and/or used in its manufacturing processes. Many of these laws and governmental standards provide for extensive obligations that require the Company to incur significant compliance costs and impose substantial monetary fines and/or criminal sanctions for violations.
Furthermore, such laws and standards are subject to change and may become more stringent. Although it is not possible to predict changes in laws or other governmental standards, the development, proposal or adoption of more stringent laws or governmental standards may require the Company to change its processes, for example, by reducing or eliminating use of the regulated component or material in its process. The Company may not be able to develop a new process to comply with such legal and regulatory changes without investing significant time and resources, if at all. In addition, such legal and regulatory changes may also affect buying decisions by the users of the Company’s products that contain regulated materials or that involve the use of such materials in the process. If applicable laws and governmental standards become more stringent, the Company’s results of operations, liquidity and financial condition could be materially adversely affected.
The Company is subject to various environmental laws, and the success of existing or future environmental claims against it could adversely impact the Company's results of operations and cash flows.
In addition to the environmental and safety considerations discussed above with respect to the Harsco Clean Earth Segment, the Company's operations generally are subject to various federal, state, local and international laws, regulations and ordinances relating to the protection of health, safety and the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous byproducts, the remediation of contaminated sites and the maintenance of a safe workplace. These laws impose penalties, fines and other sanctions for non-compliance and liability for response costs, property damages and personal injury resulting from past and current spills, disposals or other releases of, or exposure to, hazardous materials. The Company could incur substantial costs as a result of non-compliance with or liability for remediation or other costs or damages under these laws. The Company may be subject to more stringent environmental laws in the future, and compliance with more stringent environmental requirements may require the Company to make material expenditures or subject it to liabilities that the Company currently does not anticipate.
The Company is currently 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 under the federal "Superfund" law. At several sites, the Company is currently conducting environmental remediation, and it is probable that the Company will agree to make payments toward funding certain other of these remediation activities. It also is possible that some of these matters will be decided unfavorably to the Company and that other sites requiring remediation will be identified. Each of these matters is subject to various uncertainties, and financial exposure is dependent upon the following factors:
•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 nature of the Company’s products creates the possibility of significant product liability and warranty claims, which could harm its business.
The Company’s customers use some of its products in potentially hazardous applications that can cause injury or loss of life and damage to property, equipment or the environment. In addition, the Company’s products are integral to the production process for some end-users and any failure of the Company’s products could result in a suspension of operations, including products historically sold by business units of the Company to the extent that the Company retains liability for such historical products. Accidents may occur at a location where the Company’s equipment and services have been or are being used. Investigations into such accidents, even if the Company and its products are ultimately found not to be the cause of such accidents, require the Company to expend significant time, effort and resources. The Company cannot be certain that its products will be completely free from defects. The Company may be named as a defendant in product liability or other lawsuits asserting potentially large claims. In addition, the Company cannot guarantee that insurance will be available or adequate to cover any or all liabilities incurred. The Company also may not be able to maintain insurance in the future at levels it believes are necessary and at rates it considers reasonable.
FINANCIAL, TAX AND FINANCIAL MARKET RISKS
Restrictions imposed by the Company's Senior Secured Credit Facilities and other financing arrangements may limit the Company's operating and financial flexibility.
18
The agreements governing the Company's outstanding financing arrangements impose a number of restrictions. Under the Company's Senior Secured Credit Facilities, the Company must comply with certain financial covenants on a quarterly basis. The covenants also place limitations on dividends, acquisitions, investments in joint ventures, unrestricted subsidiaries, indebtedness and the imposition of liens on the Company's assets. In the event of a default, the Company's lenders and the counterparties to the Company's other financing arrangements could terminate their commitments to the Company and declare all amounts borrowed, together with accrued interests and fees, immediately due and payable. If this were to occur, the Company might not be able to pay these amounts, or the Company might be forced to seek an amendment to the Company's financing arrangements which could make the terms of these arrangements more onerous for the Company. In addition, this could also trigger an event of default under the cross-default provisions of the Company's other obligations. As a result, a default under one or more of the existing or future financing arrangements could have significant consequences for the Company.
The Company is exposed to counterparty risk in its derivative financial arrangements.
The Company uses derivative financial instruments, such as interest rate swaps and foreign currency exchange forward contracts, for a variety of purposes. The Company uses interest rate swaps in conjunction with certain debt issuances in order to secure either a fixed or floating interest rate. The Company uses foreign currency exchange forward contracts as part of a worldwide program to minimize foreign currency operating income and balance sheet exposure. In particular, the Company uses foreign currency exchange forward contracts to hedge commitments, such as foreign currency debt, firm purchase commitments and foreign currency cash flows for certain export sales transactions. The unsecured contracts for foreign
currency exchange forward contracts outstanding at December 31, 2021 mature at various times through 2023 and are with major financial institutions. The Company may also enter into derivative contracts to hedge commodity exposures. The failure of one or more counterparties to the Company's derivative financial instruments to fulfill their obligations could adversely affect the Company's results of operations, financial condition, liquidity and cash flows.
The Company’s variable rate indebtedness subjects it to interest rate risk, which could cause the Company's debt service obligations to increase significantly.
The Company's total debt at December 31, 2021 was $1.4 billion. Of this amount, approximately 62% had variable rates of interest and approximately 38% had fixed interest rates. The weighted average interest rate of total debt was approximately 3.8%. At debt levels as of December 31, 2021, a one percentage point increase in variable interest rates would increase interest expense by $6.8 million per year and a one percentage point decrease in variable interest rates would decrease interest expense by $0.5 million due to the interest rate floors on certain credit agreements. Each incremental one percentage point increase in variable interest rates would increase interest expense by an additional $8.7 million. If the Company is unable to successfully manage its exposure to variable interest rates, including through interest rate swaps that the Company has put into place, its debt service obligations may increase even though the amount borrowed remains the same and, in turn, its results of operations and financial condition may be negatively impacted.
The Company is subject to taxes in numerous jurisdictions and could be subject to additional tax liabilities, which could materially adversely affect the Company’s results of operations and cash flows and impact the Company’s ability to compete abroad.
The Company is subject to U.S. federal, U.S. state and international income, payroll, property, sales and use, value-added, fuel and other types of taxes in numerous jurisdictions. Changes in tax rates, enactments of new tax laws, revisions of tax regulations, and claims or litigation with taxing authorities could result in substantially higher taxes, and therefore could have a significant adverse effect on the Company's results of operations, financial condition and liquidity.
The Company's tax expense and liabilities may also be affected by other factors, such as changes in business operations, acquisitions, investments, entry into new geographies, intercompany transactions, the relative amount of foreign earnings, losses incurred in jurisdictions for which the related tax benefits may not be realized, and changes in deferred tax assets and their valuation. Significant judgment is required in evaluating and estimating the Company's tax expense and liabilities. The ultimate tax determination for many transactions and calculations is uncertain. For example, the legislation known as the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) requires complex computations to be performed that were not historically required, significant judgments to be made in interpretations of the provisions of the Tax Act, estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the Tax Act will be applied or administered. As future guidance is issued, the Company may need to make adjustments to amounts previously recorded, and those adjustments could materially impact the Company's consolidated financial statements in the period in which the adjustments are made.
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The Company's defined benefit NPPC is directly affected by equity and bond markets.A downward trend in those markets could adversely impact the Company's results of operations, financial condition and cash flows.
In addition to the economic issues that directly affect the Company's businesses, changes in the performance of equity and bond markets, particularly in the U.K. and the U.S., impact actuarial assumptions used in determining annual NPPC, pension liabilities and the valuation of the assets in the Company's defined benefit pension plans. Financial market deterioration would most likely have a negative impact on the Company's NPPC and the pension assets and liabilities. This could result in a decrease to stockholders' equity and an increase in the Company's statutory funding requirements.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties.
Operations of the Company and its subsidiaries are conducted at both owned and leased properties in domestic and international locations. The Company's executive offices are located at 350 Poplar Church Road, Camp Hill, Pennsylvania 17011 and are owned.17011. The following table describes the location and principal use of the Company's more significant properties.
| Location | Principal Products/Services | Interest | ||||||||||||
| Harsco Environmental Segment | 0 | |||||||||||||
| Taiyuan City, China | Environmental Services | Leased | ||||||||||||
| Rotherham, U.K. | Environmental Services | Owned | ||||||||||||
| Drakesboro, Kentucky, U.S. | Ecoproducts - Roofing Granules/Abrasives | Owned | ||||||||||||
| Sarver, Pennsylvania, U.S. | Environmental Services | Owned | ||||||||||||
| Chesterfield, U.K. | Aluminum Dross and Scrap Processing Systems | Owned | ||||||||||||
| Harsco Clean Earth Segment | ||||||||||||||
| Hazardous Waste Processing | Owned/Leased | |||||||||||||
| Leased | ||||||||||||||
| Owned | ||||||||||||||
| Owned | ||||||||||||||
| Hazardous Waste Processing | Owned | |||||||||||||
| Inglewood, California, U.S. | Hazardous Waste Processing | Owned | ||||||||||||
| Rancho Cordova, California, U.S. | Hazardous Waste Processing | Owned | ||||||||||||
| Indianapolis, Indiana, U.S. | Hazardous Waste Processing | Leased | ||||||||||||
| Detroit, Michigan, U.S. | Hazardous Waste Processing | Owned | ||||||||||||
| Kansas City, Missouri, U.S. | Hazardous Waste Processing | Owned | ||||||||||||
| Fernley, Nevada, U.S. | Hazardous Waste Processing | Owned | ||||||||||||
| Hatfield, Pennsylvania, U.S. | Owned | |||||||||||||
| Owned | ||||||||||||||
| Hazardous Waste Processing | Owned | |||||||||||||
| Owned | ||||||||||||||
| Hazardous Waste Processing | Owned | |||||||||||||
The Harsco Metals business, which is part of the Harsco Metals & MineralsEnvironmental Segment principally operates on customer-owned sites and has administrative offices throughout the world, including Camp Hill, Pennsylvania, U.S. and Leatherhead, U.K. The Harsco Clean Earth Segment has an administrative office in King of Prussia, Pennsylvania. The above table includes the principal properties owned or leased by the Company. The Company also operates from a number of other smaller plants, warehouses and offices in addition to the above. The Company considers all of its properties at which operations are currently performed to be in satisfactory condition and suitable for their intended use.
Item 3. Legal Proceedings.
Information regarding legal proceedings is included in Note 12, Commitments and Contingencies, in Part II, Item 8, "Financial Statements and Supplementary Data."
Item 4. Mine Safety Disclosures.
Not applicable.
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Supplementary Item. Information About Our Executive Officers of the Registrant.Officers.
Set forth below, at February 21, 2019,24, 2022, are the executive officers of the Company and certain information with respect to each of them. There are no family relationships among any of the executive officers.
| Name | Age | Position with the Company | |||||||||||||
| Executive Officers: | |||||||||||||||
| F. Nicholas Grasberger III | Chairman, President and Chief Executive Officer | ||||||||||||||
| Senior Vice President and Chief Financial Officer | |||||||||||||||
| Samuel C. Fenice | Vice President and Corporate Controller | ||||||||||||||
| Russell C. Hochman | Senior Vice President and General Counsel, Chief Compliance Officer & Corporate Secretary | ||||||||||||||
| Senior Vice President and Chief Human Resources Officer | |||||||||||||||
| David Stanton | 56 | Senior Vice President and Group President - Harsco Clean Earth | |||||||||||||
F. Nicholas Grasberger III - Chairman, President and Chief Executive Officer since October 22, 2018. President and Chief Executive Officer from August 1, 2014 to October 22, 2018. Mr. Grasberger served as Senior Vice President and Chief Financial Officer from April 2013 to November 2014, and as President and Chief Operating Officer from April 2014 to
August 2014. Prior to joining Harsco in 2013, Mr. Grasberger served as the Managing Director of the multinational Precision Polymers division of Fenner Plc from March 2011 to April 2013. From April 2009 to November 2009 he served as Executive Vice President and Chief Executive Officer of Armstrong Building Products. From January 2005 to March 2009 he served as Senior Vice President and Chief Financial Officer of Armstrong World Industries, Inc. Prior to his employment with Armstrong, Mr. Grasberger served as Vice President and Chief Financial Officer of Kennametal Inc. and before that as Corporate Treasurer and Director of the corporate planning process at H.J. Heinz Company. He started his career with USX Corporation.
Anshooman Aga- Mr. Aga joined Harsco in August 2021 from Cubic Corporation where he was the Executive Vice President and Chief Financial Officer since 2017. Prior to joining Cubic, Mr. Aga was Senior Vice President and Chief Financial Officer since November 11, 2014.of AECOM's multi-billion-dollar Design and Consulting Services business in the Americas. He also held a series of financial leadership positions during his 17 years at Siemens. Mr. Minan hasAga holds an extensive backgroundMBA from the Crummer Graduate School of Business at Rollins College and a Bachelor of Science degree in global financial management acquired through a nearly 30-year career with KPMGFinance from 1983 to 2012. He became a partner at KPMG in 1993 and served as global lead partner for several multi-national Fortune 500 industrial and consumer audits. His roles included National Managing Partner, U.S. Audit practice, and Partner in Charge, Washington/Baltimore Audit practice. His most recent role was with Computer Sciences Corporation, where he served as Vice President of Enterprise Risk Management and Internal Audit from 2012 to 2013.Troy University.
Samuel C. Fenice - Vice President and Corporate Controller since August 16, 2016. Mr. Fenice oversees the administration of all corporate accounting policies and procedures, including internal and external corporate reporting. Mr. Fenice joined Harsco’s Internal Audit team in 2002 and has since held progressively responsible roles in Finance, including two terms as Interim Corporate Controller. Mr. Fenice isholds a graduateBachelor of PennScience degree in Accounting from The Pennsylvania State University and is a Certified Public Accountant.
Russell C. Hochman - Senior Vice President and General Counsel, Chief Compliance Officer and Corporate Secretary since May 2015. Served as Vice President, Interim General Counsel, Chief Compliance Officer and Corporate Secretary from
March 2015 to May 2015. Served as Deputy General Counsel from July 2013 to March 2015. Prior to joining Harsco in 2013, Mr. Hochman served in senior legal roles with Pitney Bowes Inc. and leading law firms based in New York. Mr. Hochman holds a J.D. from Albany Law School of Union University and a B.A. from Cornell University.
22
responsible roles in operations and finance at Tyco International and SouthWest Water. Mr. Stanton holds a Bachelor of Science in Electrical Engineering from Cornell University.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Harsco Corporation common stock is listed on the New York Stock Exchange under the trading symbol HSC. At December 31, 2018,2021, there were 79,545,02379,215,546 shares outstanding. In 2018,2021, the Company's common stock traded in a range of $15.55$13.29 to $30.05$23.73 and closed at $19.86$16.71 at year-end. At December 31, 2018,2021, there were approximately 18,65524,949 stockholders. For additional information regarding the Company's equity compensation plans see Note 14, Stock-Based Compensation, in Part II, Item 8, "Financial Statements and Supplementary Data," and Part III, Item 11, "Executive Compensation.Compensation," and Part III, Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."
Stock Performance Graph
*$100 invested on December 31, 201312/31/16 in stock or index, including reinvestment of dividends.
Fiscal year ending
December 31.
Copyright© 20192022 Standard & Poor's, a division of S&P Global. All rights reserved.
Copyright© 20192022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
| December 2013 | December 2014 | December 2015 | December 2016 | December 2017 | December 2018 | December 2016 | December 2017 | December 2018 | December 2019 | December 2020 | December 2021 | |||||||||||||||||||||
| Harsco Corporation | 100.00 | 69.81 | 30.88 | 53.73 | 73.67 | 78.45 | Harsco Corporation | 100.00 | 137.13 | 146.03 | 169.19 | 132.21 | 122.87 | |||||||||||||||||||
| S&P Smallcap 600 | 100.00 | 105.76 | 103.67 | 131.20 | 148.56 | 135.96 | S&P Smallcap 600 | 100.00 | 113.23 | 103.63 | 127.24 | 141.60 | 179.58 | |||||||||||||||||||
| Dow Jones US Diversified Industrials | 100.00 | 101.05 | 114.02 | 126.52 | 118.18 | 88.53 | Dow Jones US Diversified Industrials | 100.00 | 93.41 | 69.98 | 88.80 | 99.85 | 109.82 | |||||||||||||||||||
Issuer Purchases of Equity Securities
On May 2, 2018, the Company announced that the Board of Directors (the "Board") adopted a share repurchase program authorizing the Company to repurchase up to $75,000,000 of outstanding shares of the Company’s common stock through April 24, 2021. Below is a table showing the share repurchase activityThe Company did not purchase any shares of common stock under this program during the fourth quarter of 2018:year ended December 31, 2021.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||
| October 1, 2018 - October 31, 2018 | 550,508 | $ | 23.95 | 550,508 | $ | 61,813,516 | ||||||||
| November 1, 2018 - November 30, 2018 | 238,591 | 25.15 | 238,591 | 55,812,773 | ||||||||||
| December 1, 2018 - December 31, 2018 | 531,973 | 20.35 | 531,973 | 44,989,369 | ||||||||||
| Total | 1,321,072 | $ | 22.72 | 1,321,072 | ||||||||||
| (In thousands, except per share, employee information and percentages) | 2018 (b) | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
| Statement of operations information | |||||||||||||||||||||
| Revenues from continuing operations (a) | $ | 1,722,380 | $ | 1,607,062 | $ | 1,451,223 | $ | 1,723,092 | $ | 2,066,288 | |||||||||||
| Amounts attributable to Harsco Corporation common stockholders (a) | |||||||||||||||||||||
| Income (loss) from continuing operations | $ | 136,783 | $ | 7,626 | $ | (86,336 | ) | $ | 7,168 | $ | (22,281 | ) | |||||||||
| Income (loss) from discontinued operations | 274 | 196 | 669 | (980 | ) | 110 | |||||||||||||||
| Net income (loss) | 137,057 | 7,822 | (85,667 | ) | 6,188 | (22,171 | ) | ||||||||||||||
| Financial position and cash flow information | |||||||||||||||||||||
| Working capital (c) | $ | 188,038 | $ | 117,964 | $ | 122,602 | $ | 120,267 | $ | 80,036 | |||||||||||
| Total assets (d) | 1,632,867 | 1,578,685 | 1,581,338 | 2,051,887 | 2,263,664 | ||||||||||||||||
| Long-term debt (d) | 585,662 | 566,794 | 629,239 | 845,621 | 827,428 | ||||||||||||||||
| Total debt (d) | 602,229 | 586,623 | 659,072 | 900,934 | 869,364 | ||||||||||||||||
| Depreciation and amortization | 132,785 | 129,937 | 141,486 | 156,475 | 176,326 | ||||||||||||||||
| Capital expenditures | (132,168 | ) | (98,314 | ) | (69,340 | ) | (123,552 | ) | (208,859 | ) | |||||||||||
| Cash provided by operating activities (e) | 192,022 | 176,892 | 159,876 | 121,772 | 227,442 | ||||||||||||||||
| Cash provided (used) by investing activities | (161,143 | ) | (103,325 | ) | 122,887 | (130,373 | ) | (229,561 | ) | ||||||||||||
Cash provided (used) by financing activities (e) | (25,538 | ) | (83,715 | ) | (292,364 | ) | 22,189 | (22,509 | ) | ||||||||||||
| Ratios | |||||||||||||||||||||
| Return on average equity (f) | 50.7 | % | 4.1 | % | (29.5 | )% | 2.3 | % | (4.0 | )% | |||||||||||
| Current ratio (c) (g) | 1.5 | :1 | 1.2 | :1 | 1.3 | :1 | 1.2 | :1 | 1.1 | :1 | |||||||||||
| Per share information attributable to Harsco Corporation common stockholders | |||||||||||||||||||||
| Basic—Income (loss) from continuing operations | $ | 1.69 | $ | 0.09 | $ | (1.07 | ) | $ | 0.09 | $ | (0.28 | ) | |||||||||
| Income (loss) from discontinued operations | — | — | 0.01 | (0.01 | ) | — | |||||||||||||||
| Net income (loss) | $ | 1.70 | (h) | $ | 0.10 | (h) | $ | (1.07 | ) | (h) | $ | 0.08 | $ | (0.27 | ) | (h) | |||||
| Diluted—Income (loss) from continuing operations | $ | 1.64 | $ | 0.09 | $ | (1.07 | ) | $ | 0.09 | $ | (0.28 | ) | |||||||||
| Income (loss) from discontinued operations | — | — | 0.01 | (0.01 | ) | — | |||||||||||||||
| Net income (loss) | $ | 1.64 | $ | 0.09 | $ | (1.07 | ) | (h) | $ | 0.08 | $ | (0.27 | ) | (h) | |||||||
| Other information | |||||||||||||||||||||
| Book value per share (i) | $ | 3.94 | $ | 2.67 | $ | 1.72 | $ | 3.88 | $ | 4.36 | |||||||||||
| Cash dividends declared per share | — | — | — | 0.666 | 0.820 | ||||||||||||||||
| Diluted weighted-average number of shares outstanding | 83,595 | 82,840 | 80,333 | 80,365 | 80,884 | ||||||||||||||||
| Number of employees | 9,900 | 9,400 | 9,400 | 10,800 | 12,200 | ||||||||||||||||
Item 6. [Reserved].
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the Consolidated Financial Statements of Harsco Corporation (the "Company") provided under Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.
Amounts included in this Item 7 of this Annual Report on Form 10-K are rounded in millions and all percentages are calculated based on actual amounts. As a result, minor differences may exist due to rounding.
Forward-Looking Statements
The nature of the Company's business, together with the number of countries in which it operates, subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the "safe harbor" provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein. Forward-looking statements contained herein could include, among other things, statements about management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, sales, cash flows, and earnings. Forward-looking statements can be identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "outlook," "plan" or other comparable terms.
Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including changes in general economic conditions;conditions or changes due to COVID-19 and governmental and market reactions to COVID-19; (2) changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs;(3) changes in the performance of equity and bond markets that could affect, among other things, the valuation of the assets in the Company's pension plans and the accounting for pension assets, liabilities and expenses; (4) changes in governmental laws and regulations, including environmental, occupational health and safety, tax and import tariff standards;standards and amounts; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) the Company's inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates; (7) failure to effectively prevent, detect or recover from breaches in the Company's cybersecurity infrastructure; (8) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (9) disruptions associated with labor disputes and increased operating costs associated with union organization; (10) the seasonal nature of the Company's business; (11) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all; (12) the integrationCompany's ability to negotiate, complete, and integrate strategic transactions; (13) failure to conduct and complete a satisfactory process for the divestiture of the Company's strategic acquisitions; (13)Rail division, as announced on November 2, 2021; (14) potential severe volatility in the amountcapital or commodity markets; (15) failure to retain key management and timing of repurchases of the Company's common stock, if any; (14)employees;(16) the outcome of any disputes with customers, contractors and subcontractors; (15)(17) the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged, and those withhave inadequate liquidity)liquidity or whose business is significantly impacted by COVID-19) to maintain their credit availability; (16)(18) implementation of environmental remediation matters; (17)(19) risk and uncertainty associated with intangible assets;assets and (18)(20) other risk factors listed from time to time in the Company's SEC reports. A further discussion of these, along with other potential risk factors, can be found in Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements except as may be required by law.
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Executive Overview
The Company is a diversified, multinationalmarket-leading, global provider of environmental solutions for industrial, environmental servicesretail and engineered products serving global industries that are fundamental to worldwide economic growth and infrastructure development.medical waste streams. The Company's operations consist of threetwo reportable segments: Harsco Metals & Minerals, Harsco IndustrialEnvironmental and Harsco Rail. In general,Clean Earth. The Company is a single-thesis environmental solutions company that is a leader in the Company believes each of the segments are among the global market leaders in their respective sectors.markets that we serve. The Harsco Metals & MineralsEnvironmental Segment provides on-siteoperates primarily under long-term contracts, providing critical environmental services for product quality improvement; resource recovery fromand material processing to the global steel and metals manufacturing; and material logistics; value added environmentalindustries, including zero waste solutions for industrial co-products; as well as aluminum dross and scrap process systems.manufacturing byproducts within the metals industry. The Harsco IndustrialClean Earth Segment is a supplier of custom-engineeredprovides waste management services including transportation, specialty waste processing, recycling and manufactured air-cooled heat exchangers that support the processingbeneficial reuse solutions for hazardous waste and distribution of natural gassoil and downstream refined products; manufactures a full range of metal bar grating configurations, used mainly in industrial flooring, as well as safety and security applications; and also manufactures energy-efficient heat transfer products such as boilers and water heaters, for various commercial and industrial applications. The Harsco Rail Segment is a provider of highly engineered maintenance equipment, after-market parts and safety and diagnostic systems which support railroad and transit customers worldwide.dredged materials. The Company has locations in approximately 30 countries, including the U.S. The Company was incorporated in 1956.
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 increase certain levels set forth in the total net leverage ratio covenant. In addition, the Company issued a New Term Loan, using the proceeds to repay in full the outstanding Term Loan A and Term Loan B. The New Term Loan matures 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. See Note 8, Debt, in Part II, Item 8, "Financial Statements," for additional details.
In November 2021, the Company announced its intent to explore strategic alternatives for the Rail business, with the intention to sell the business. As a result, the (i) carrying value of the assets and liabilities of the Harsco Rail Segment have been classified as Assets held-for-sale and Liabilities of assets held-for-sale on the Consolidated Balance Sheets; (ii) the operating results of the Harsco Rail Segment have been reflected in the Consolidated Statement of Operations as discontinued operations for all periods presented; and (iii) all disclosures have been updated to reflect these changes.
Highlights for 2018 included (Refer2021 include (refer to the discussion of segment and consolidated results included within Results of Operations below, as well as Liquidity and Capital Resources, for additional information pertaining to the key drivers impacting these highlights):
•Revenues for 2018the year ended December 31, 2021 increased approximately 7%20% compared with 2017.the year ended December 31, 2020. The primary drivers for this increase were higher demand andthe acquisition of ESOL, increased volumes in the Harsco Metals & MineralsEnvironmental Segment and Harsco Clean Earth Segment and the Harsco Industrial Segment's air-cooled heat exchanger business, partially offset by decreased revenues in the Harsco Rail Segment related to the contract with the federal railway systemimpact of Switzerland ("SBB").foreign currency translation.
•Operating income from continuing operations for 2018the year ended December 31, 2021 increased approximately 31%$91.7 million compared with 2017.the year ended December 31, 2020. The primary driverdrivers for this increase was improved operating results across all businesses, including a decreasewere increased volumes in Corporate spending.the Harsco Environmental Segment and the Clean Earth Segment; the acquisition of ESOL; acquisition and integration costs primarily related to the ESOL acquisition, which were incurred during 2020 and not repeated; and the recovery of $9.8 million of Brazil sales and use tax expense in the Harsco Environmental Segment.
•Diluted earnings per common share from continuing operations attributable to Harsco Corporation for 2018the year ended December 31, 2021 were $1.64$0.28, an increase compared to $0.09 in 2017.with diluted losses per common share from continuing operations of $(0.63) for the year ended December 31, 2020. The primary drivers of this increase are those noted above for the increase were loweroperating income tax expense, improved operating results and a decrease in interest expense. The decrease in income tax expense is due to the finalization of accounting for the Tax Cuts and Jobs Act (the "Tax Act") which included a provisional charge of $48.7 million recorded in 2017 that did not repeat in 2018 and a favorable adjustment to this provision in 2018 of $15.4 million, an $8.3 million tax benefit arising from the adjustment to certain existing deferred tax asset valuation allowances as the result of the acquisition of Altek Europe Holdings Limited and its affiliated entities (collectively, "Altek"); and a lower effective income tax rate. The decrease in interest expense is due to the repricing of the Company’s senior secured credit facility (the "Senior Secured Credit Facility") in both December 2017 and June 2018.continuing operations.
•Cash flows fromprovided by operating activities for 2018 was $192the year ended December 31, 2021 were $72.2 million, an increase of approximately 9%$18.4 million compared with 2017.cash flows provided by operating activities the year ended December 31, 2020. The primary driverdrivers for this increase was higher net cash income.
•Capital expenditures for purchases of property, plant and equipment for the Company although some volatility is expected to persist inyear ended December 31, 2021 were $158.3 million, an increase of $38.1 million or 31.7% compared with the future. Given these expectations, the Company believes it is well positioned to execute actions through a disciplined focus on return-based capital allocations and business portfolio strategies. year ended December 31, 2020.
The Company believes these actions will enable it to generate returns above its cost of capital, with a balanced business portfolio, without jeopardizing its financial profile with unreasonable leverage. Looking forward, the Company maintains a positive outlook across all businesses.
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For 2022, the Company expects continued growth and increased operating income in both of our reporting segments supported by:
•HE: improved demand for environmental services supported by higher steel production and higher commodity volumes and prices. Additionally, increased short-cycle ad-hoc services provided to existing steel mill customers; new sites (or contracts); lower operating costs achieved through improvement initiatives; and increased contributions from the Company’s industrial abrasives, metal additives and roofing granules business also positively impacted results in 2018. For 2019, (i) global growth in ecoproducts. Over the longer-term the Company expects that the Harsco Environmental Segment's growth will be driven by economic growth that supports higher global steel productionconsumption as well as investments and consumption are expected to increase demand for mill services; (ii) new sites (or contracts) are expected to outpace site exits;innovation that support the environmental solutions needs of customers.
Results of Operations
Revenues by Segment
| (Dollars in millions) | 2018 | 2017 | Change | % | |||||||||||
| Harsco Metals & Minerals | $ | 1,068.3 | $ | 1,011.3 | $ | 57.0 | 5.6 | % | |||||||
| Harsco Industrial | 374.7 | 299.6 | 75.1 | 25.1 | |||||||||||
| Harsco Rail | 279.3 | 296.0 | (16.7 | ) | (5.6 | ) | |||||||||
| Corporate | 0.1 | 0.1 | (0.1 | ) | (48.3 | ) | |||||||||
| Total Revenues | $ | 1,722.4 | $ | 1,607.1 | $ | 115.3 | 7.2 | % | |||||||
| (Dollars in millions) | 2021 | 2020 | Change | % | ||||||||||||||||||||||
| Harsco Environmental | $ | 1,068.1 | $ | 914.4 | $ | 153.6 | 16.8 | % | ||||||||||||||||||
| Harsco Clean Earth | 780.3 | 619.6 | 160.7 | 25.9 | ||||||||||||||||||||||
| Total Revenues | $ | 1,848.4 | $ | 1,534.0 | $ | 314.4 | 20.5 | % | ||||||||||||||||||
Revenues by Region
| (Dollars in millions) | 2021 | 2020 | Change | % | ||||||||||||||||||||||
| North America | $ | 1,061.4 | $ | 869.5 | $ | 191.9 | 22.1 | % | ||||||||||||||||||
| Western Europe | 442.3 | 377.1 | 65.2 | 17.3 | ||||||||||||||||||||||
Latin America (a) | 132.3 | 119.5 | 12.9 | 10.8 | ||||||||||||||||||||||
| Asia-Pacific | 110.8 | 87.6 | 23.2 | 26.5 | ||||||||||||||||||||||
| Middle East and Africa | 81.3 | 63.4 | 17.9 | 28.2 | ||||||||||||||||||||||
| Eastern Europe | 20.2 | 17.0 | 3.2 | 18.9 | ||||||||||||||||||||||
| Total Revenues | $ | 1,848.4 | $ | 1,534.0 | $ | 314.4 | 20.5 | % | ||||||||||||||||||
| (Dollars in millions) | 2018 | 2017 | Change | % | |||||||||||
| North America | $ | 862.1 | $ | 745.0 | $ | 117.1 | 15.7 | % | |||||||
| Western Europe | 438.9 | 448.5 | (9.6 | ) | (2.1 | ) | |||||||||
Latin America (a) | 176.0 | 183.3 | (7.3 | ) | (4.0 | ) | |||||||||
| Asia-Pacific | 167.9 | 160.7 | 7.2 | 4.5 | |||||||||||
| Middle East and Africa | 50.0 | 42.7 | 7.3 | 17.1 | |||||||||||
| Eastern Europe | 27.6 | 26.9 | 0.6 | 2.3 | |||||||||||
| Total Revenues | $ | 1,722.4 | $ | 1,607.1 | $ | 115.3 | 7.2 | % | |||||||
Operating Income (Loss) and Operating Margins by Segment
| (Dollars in millions) | 2021 | 2020 | Change | % | ||||||||||||||||||||||
| Harsco Environmental | $ | 103.4 | $ | 59.0 | $ | 44.4 | 75.2 | % | ||||||||||||||||||
| Harsco Clean Earth | 25.6 | 16.1 | 9.5 | 59.3 | ||||||||||||||||||||||
| Corporate | (40.7) | (78.4) | 37.7 | 48.1 | ||||||||||||||||||||||
| Total Operating Income | $ | 88.4 | $ | (3.3) | $ | 91.7 | 2,773.2 | % | ||||||||||||||||||
| (Dollars in millions) | 2018 | 2017 | Change | % | |||||||||||
| Harsco Metals & Minerals | $ | 121.2 | $ | 102.4 | $ | 18.8 | 18.4 | % | |||||||
| Harsco Industrial | 54.7 | 35.5 | 19.1 | 53.8 | |||||||||||
| Harsco Rail | 37.3 | 33.0 | 4.4 | 13.3 | |||||||||||
| Corporate | (22.3 | ) | (25.5 | ) | 3.2 | 12.5 | |||||||||
| Total Operating Income | $ | 190.9 | $ | 145.4 | $ | 45.5 | 31.3 | % | |||||||
| 2021 | 2020 | |||||||||||||
| Harsco Environmental | 9.7 | % | 6.5 | % | ||||||||||
| Harsco Clean Earth | 3.3 | 2.6 | ||||||||||||
| Consolidated Operating Margin | 4.8 | % | (0.2) | % | ||||||||||
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| 2018 | 2017 | |||||
| Harsco Metals & Minerals | 11.3 | % | 10.1 | % | ||
| Harsco Industrial | 14.6 | 11.9 | ||||
| Harsco Rail | 13.4 | 11.1 | ||||
| Consolidated Operating Margin | 11.1 | % | 9.0 | % | ||
Harsco Metals & MineralsEnvironmental Segment:
Significant Effects on Revenues (In millions) | ||||||||
| Revenues—2020 | $ | 914.4 | ||||||
| Net effects of price/volume changes, primarily attributable to volume changes. | 138.3 | |||||||
| Foreign currency translation. | 20.8 | |||||||
| Net impact of new contracts and lost contracts. | (5.6) | |||||||
| Other. | 0.2 | |||||||
| Revenues—2021 | $ | 1,068.1 | ||||||
Significant Effects on Revenues (In millions) | ||||
| Revenues—2017 | $ | 1,011.3 | ||
| Net effects of price/volume changes, primarily attributable to volume changes. | 48.6 | |||
| Effect of Altek acquisition. | 11.8 | |||
| Net impact of new contracts and lost contracts. | (2.3 | ) | ||
| Foreign currency translation. | (1.8 | ) | ||
| Other. | 0.7 | |||
| Revenues—2018 | $ | 1,068.3 | ||
The following factors contributed to the changes in operating income for the year ended December 31, 2021.
Factors Positively Affecting Operating Income:
•Operating income was positively affected by increased short-cycle ad-hoc services provided to steel mill customers under existing contracts.higher contributions from ecoproducts for the year ended December 31, 2021.
•Operating results for 2018the year ended December 31, 2020 were positively affectednegatively impacted by improved profitability in$9.4 million of employee termination costs as compared to $2.9 million for the Company's nickel-related sites due partially to increased nickel prices; and the industrial abrasives and metal additives businesses. Nickel prices increased 28% for 2018 compared with prior year.year ended December 31, 2021.
Factors Negatively Impacting Operating Income:
Harsco Clean Earth Segment:
The Company acquired ESOL on April 6, 2020 and the operating results are reflected in CE.
Significant Effects on Revenues (In millions) | ||||||||
| Revenues—2020 | $ | 619.6 | ||||||
Impact of ESOL acquisition. (b) | 134.2 | |||||||
| Net effects of price/volume changes, primarily attributable to volume changes. | 25.6 | |||||||
| Other. | 0.9 | |||||||
| Revenues—2021 | $ | 780.3 | ||||||
(b) Includes net revenue of ESOL for the industrial abrasives business.three months ended March 31, 2021.
The following factors contributed to compensation expense and higher professional fees to support and execute the Company's growth strategies.changes in operating income for the year ended December 31, 2021.
Significant Effects on Revenues (In millions) | ||||
| Revenues—2017 | $ | 299.6 | ||
| Net effects of price/volume changes, primarily attributable to volume changes. | 75.3 | |||
| Foreign currency translation. | (0.2 | ) | ||
| Revenues—2018 | $ | 374.7 | ||
Factors Positively Affecting Operating Income:
•The ESOL acquisition contributed $7.0 million to operating income during 2018 compared with prior year.the first quarter of 2021.
Factors Negatively Impacting Operating Income:
•Increase in the air-cooled heat exchanger business.
Significant Impacts on Revenues (In millions) | ||||
| Revenues—2017 | $ | 296.0 | ||
| Revenues under the contracts with SBB. | (18.3 | ) | ||
| Foreign currency translation. | (1.1 | ) | ||
| Net effects of price/volume changes (exclusive of revenues under the SBB contracts), primarily attributable to volume changes. | 2.6 | |||
| Other. | 0.1 | |||
| Revenues—2018 | $ | 279.3 | ||
•Impact of increases in costs related to lower professional fees.labor, transportation and materials.
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Corporate Costs:
In addition to the factors highlighted above that positively effected or negatively impacted segment operating income, the Company's Corporate function was positively affected by acquisition related and integration costs of approximately $48.5 million during 2018.the year ended December 31, 2020 not repeated in the current year. This was partially offset by increased insurance and compensation costs.
Consolidated Results
| (In millions, except per share information and percentages) | 2021 | 2020 | 2019 | |||||||||||||||||
| Total revenues | $ | 1,848.4 | $ | 1,534.0 | $ | 1,204.4 | ||||||||||||||
| Cost of services and products sold | 1,490.6 | 1,242.3 | 930.1 | |||||||||||||||||
| Selling, general and administrative expenses | 272.2 | 284.4 | 205.2 | |||||||||||||||||
| Research and development expenses | 1.0 | 0.5 | 0.9 | |||||||||||||||||
| Other (income) expenses, net | (3.7) | 10.1 | (8.2) | |||||||||||||||||
| Operating income (loss) from continuing operations | 88.4 | (3.3) | 76.4 | |||||||||||||||||
| Interest income | 2.2 | 2.1 | 1.9 | |||||||||||||||||
| Interest expense | (63.2) | (58.2) | (34.0) | |||||||||||||||||
| Unused debt commitment and amendment fees and loss on extinguishment of debt | (5.5) | (1.9) | (7.7) | |||||||||||||||||
| Defined benefit pension income (expense) | 15.6 | 7.1 | (5.6) | |||||||||||||||||
| Income tax benefit (expense) from continuing operations | (9.1) | 8.7 | (12.7) | |||||||||||||||||
| Equity in income (loss) of unconsolidated entities, net | (0.3) | 0.2 | 0.3 | |||||||||||||||||
| Income (loss) from continuing operations | 28.1 | (45.4) | 18.6 | |||||||||||||||||
| Gain on sale of discontinued businesses | — | 18.3 | 569.1 | |||||||||||||||||
| Income (loss) from discontinued businesses | (25.9) | 20.4 | 52.9 | |||||||||||||||||
| Income tax benefit ( expense) from discontinued businesses | 0.5 | (15.2) | (128.5) | |||||||||||||||||
| Income (loss) from discontinued operations, net of tax | (25.4) | 23.4 | 493.6 | |||||||||||||||||
| Net income (loss) | 2.7 | (22.0) | 512.2 | |||||||||||||||||
| Total other comprehensive income (loss) | 84.1 | (55.3) | (0.1) | |||||||||||||||||
| Total comprehensive (income) loss | 86.8 | (77.3) | 512.2 | |||||||||||||||||
| Diluted income (loss) per common share from continuing operations attributable to Harsco Corporation common stockholders | 0.28 | (0.63) | 0.13 | |||||||||||||||||
| Effective income tax rate from continuing operations | 24.2 | % | 16.0 | % | 41.0 | % | ||||||||||||||
| (In millions, except per share information and percentages) | 2018 | 2017 | 2016 | |||||||||
| Total revenues | $ | 1,722.4 | $ | 1,607.1 | $ | 1,451.2 | ||||||
| Cost of services and products sold | 1,288.7 | 1,223.0 | 1,172.6 | |||||||||
| Selling, general and administrative expenses | 238.7 | 229.8 | 196.9 | |||||||||
| Research and development expenses | 5.5 | 4.2 | 4.3 | |||||||||
| Other (income) expenses, net | (1.5 | ) | 4.6 | 12.6 | ||||||||
| Operating income from continuing operations | 190.9 | 145.4 | 64.9 | |||||||||
| Interest income | 2.2 | 2.5 | 2.5 | |||||||||
| Interest expense | (38.1 | ) | (47.6 | ) | (51.6 | ) | ||||||
| Defined benefit pension income (expense) | 3.4 | (2.6 | ) | (1.4 | ) | |||||||
| Loss on early extinguishment of debt | (1.1 | ) | (2.3 | ) | (35.3 | ) | ||||||
| Change in fair value to the unit adjustment liability and loss on dilution and sale of equity method investment | — | — | (58.5 | ) | ||||||||
| Income tax expense from continuing operations | (12.9 | ) | (83.8 | ) | (6.6 | ) | ||||||
| Equity in income of unconsolidated entities, net | 0.4 | — | 5.7 | |||||||||
| Income (loss) from continuing operations | 144.7 | 11.6 | (80.4 | ) | ||||||||
| Income from discontinued operations | 0.3 | 0.2 | 0.7 | |||||||||
| Net income (loss) | 145.0 | 11.8 | (79.8 | ) | ||||||||
| Total other comprehensive income (loss) | (21.5 | ) | 63.2 | (93.6 | ) | |||||||
| Total comprehensive income (loss) | 123.5 | 75.0 | (173.4 | ) | ||||||||
| Diluted income (loss) per common share from continuing operations attributable to Harsco Corporation common stockholders | 1.64 | 0.09 | (1.07 | ) | ||||||||
| Effective income tax rate for continuing operations | 8.2 | % | 87.8 | % | (8.4 | )% | ||||||
Comparative Analysis of Consolidated Results
Total Revenues
Revenues for 20182021 increased $115.3$314.4 million or 7%20% from 2017.2020. Revenues for 20172020 increased $155.8$329.7 million or 11%27% from 2016.2019. These increases were attributable to the following significant items:
| Changes in Revenues (In millions) | 2021 vs. 2020 | 2020 vs. 2019 | ||||||||||||
| Impact of ESOL and Clean Earth acquisitions. | $ | 134.2 | $ | 500.9 | ||||||||||
| Net effect of price/volume changes in the Harsco Environmental Segment, primarily attributable to volume changes. | 138.3 | (73.7) | ||||||||||||
| Net effect of price/volume changes in the Harsco Clean Earth Segment, primarily attributable to volume changes. | 25.6 | (36.1) | ||||||||||||
| Foreign currency translation. | 20.8 | (24.4) | ||||||||||||
| Net impact of new contracts and lost contracts (including exited underperforming contracts) in the Harsco Environmental Segment. | (5.6) | (21.3) | ||||||||||||
| Other. | 1.1 | (15.7) | ||||||||||||
| Total change in revenues | $ | 314.4 | $ | 329.7 | ||||||||||
| Changes in Revenues (In millions) | 2018 vs. 2017 | 2017 vs. 2016 | ||||||
| Net effect of price/volume changes in the Harsco Industrial Segment, primarily attributable to volume changes. | $ | 75.3 | $ | 52.0 | ||||
| Net effect of price/volume changes in the Harsco Metals & Minerals Segment, primarily attributable to volume changes. | 48.6 | 55.9 | ||||||
| Effect of Altek acquisition in the Harsco Metals & Minerals Segment. | 11.8 | — | ||||||
| Net effect of price/volume changes (exclusive of revenues under the SBB contracts for 2018), primarily attributable to volume changes in the Harsco Rail Segment. | 2.6 | 16.4 | ||||||
| Timing of revenues under the contracts with SBB in the Harsco Rail Segment. | (18.3 | ) | 42.5 | |||||
| Foreign currency translation. | (3.1 | ) | 8.0 | |||||
| Net impact of new contracts and lost contracts (including exited underperforming contracts) in the Harsco Metals & Minerals Segment. | (2.3 | ) | (18.4 | ) | ||||
| Other. | 0.7 | (0.6 | ) | |||||
| Total change in revenues | $ | 115.3 | $ | 155.8 | ||||
Cost of Services and Products Sold
Cost of services and products sold for 20182021 increased $65.7$248.3 million or 5%20% from 2017.2020. Cost of services and products sold for 20172020 increased $50.4$312.2 million or 4%34% from 2016.2019. These increases were attributable to the following significant items:
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| Change in Cost of Services and Products Sold (In millions) | 2018 vs. 2017 | 2017 vs. 2016 | ||||||
| Increased costs due to changes in revenues; and product and service mix (exclusive of foreign currency translation and fluctuations in commodity costs included in selling prices). | $ | 65.2 | $ | 96.4 | ||||
| Foreign currency translation. | (1.5 | ) | 7.5 | |||||
Decreased costs due to estimated forward loss provision in the Harsco Rail Segment during the prior year (a). | — | (45.1 | ) | |||||
| Other. | 2.0 | (8.4 | ) | |||||
| Total change in cost of services and products sold | $ | 65.7 | $ | 50.4 | ||||
| Change in Cost of Services and Products Sold (In millions) | 2021 vs. 2020 | 2020 vs. 2019 | ||||||||||||
| Impact of ESOL and Clean Earth acquisitions. | $ | 104.0 | $ | 409.5 | ||||||||||
| Change in costs due to changes in revenues (exclusive of the ESOL and Clean Earth acquisitions and effects of foreign currency translation and including fluctuations in commodity costs included in selling prices). | 119.1 | (81.9) | ||||||||||||
| Foreign currency translation. | 19.2 | (18.3) | ||||||||||||
| Other. | 6.0 | 2.9 | ||||||||||||
| Total change in cost of services and products sold | $ | 248.3 | $ | 312.2 | ||||||||||
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2017 increased $32.92021 decreased $12.2 million or 17%4% from 2016.2020. The decrease is primarily due to acquisition and integration costs incurred in 2020 related to the acquisition of ESOL that did not repeat in 2021, partially offset by the incremental impact of selling, general and administrative expenses associated with the ESOL business and higher compensation costs in 2021.
Selling, general and administrative expenses for 2020 increased $79.3 million or 39% from 2019. This increase wasprimarily relates to incremental acquisition related and integration costs of approximately $24 million during 2020, primarily related to higher compensation expensethe acquisition of ESOL and the inclusion of selling, general and administrative expenses associated with the ESOL and Clean Earth acquisitions, which occurred in April 2020 and June 2019, respectively. These increases were partially offset by a provision for doubtful accounts related to the timing of stock-based compensation issuancesa U.K. customer that entered administration during 2019 that did not repeat in 2020 and higher incentive compensation earned; higher bad debt expense in the Metals & Minerals Segment; increased agent commissions in the Harsco Industrial Segment;decreased travel and increased professional fees.entertainment expenses.
Other (Income) Expenses, Net
The major components of this Consolidated Statement of operations caption are detailed below. See Note 18, Other (Income) Expenses, Net, in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information.
| Other (Income) Expenses | ||||||||||||||||||||||||||||||||
| (In thousands) | (In thousands) | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||
| Employee termination benefits costs | Employee termination benefits costs | $ | 4,766 | $ | 10,249 | $ | 4,226 | |||||||||||||||||||||||||
| Net gains | Net gains | (8,902) | (3,723) | (6,303) | ||||||||||||||||||||||||||||
| Contingent consideration adjustments | Contingent consideration adjustments | — | 2,386 | (7,681) | ||||||||||||||||||||||||||||
| Impaired asset write-downs | Impaired asset write-downs | 1,005 | 776 | 632 | ||||||||||||||||||||||||||||
| Other costs to exit activities | Other costs to exit activities | 663 | 533 | 1,166 | ||||||||||||||||||||||||||||
| Other Expenses | ||||||||||||||||||||||||||||||||
| (In thousands) | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||
| Net gains | $ | (3,868 | ) | $ | (5,136 | ) | $ | (1,764 | ) | |||||||||||||||||||||||
| Employee termination benefits costs | 4,983 | 7,350 | 10,777 | |||||||||||||||||||||||||||||
| Other costs to exit activities | 428 | 1,633 | 440 | |||||||||||||||||||||||||||||
| Impaired asset write-downs | 113 | 1,025 | 399 | |||||||||||||||||||||||||||||
| Contingent consideration adjustments | (2,939 | ) | — | — | ||||||||||||||||||||||||||||
| Harsco Metals & Minerals Segment separation costs | — | — | 3,235 | |||||||||||||||||||||||||||||
| Other income | (239 | ) | (231 | ) | (467 | ) | Other income | (1,254) | (149) | (234) | ||||||||||||||||||||||
| Total other (income) expenses, net | $ | (1,522 | ) | $ | 4,641 | $ | 12,620 | Total other (income) expenses, net | $ | (3,722) | $ | 10,072 | $ | (8,194) | ||||||||||||||||||
Interest Expense
Interest expense in 20182021 was $38.1$63.2 million, a decreasean increase of $9.4$5.0 million or 20%9% compared with 2017. The decrease2020. This increase primarily relates to reduced interest rates for the Senior Secured Credit Facility, which was amended in December 2017 and June 2018.higher outstanding borrowings.
Interest expense in 20172020 was $47.6$58.2 million, a decreasean increase of $4.0$24.2 million or 8%71% compared with 2016.2019. The decreaseincrease primarily relates to the Company's overall reduction in debt levels, partially offset by an increase inhigher outstanding borrowings and weighted average interest rates associated withrelated to the Company's debt. June 2019 issuance of the Senior Notes and the April 2020 issuance of the Term Loan A.
See Note 8, Debt and Credit Agreements, in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information.
Unused Debt Commitment Fees, Amendment Fees and Loss on Early Extinguishment of Debt
During 2020, the Company recognized $1.9 million of fees and expenses related to the amended Senior Secured Credit Facilities.
During 2019, the Company recognized $6.7 million of expenses for fees and other costs related to the unused bridge financing commitment that the Company arranged in the event that the Senior Notes were not issued prior to the acquisition of CE. Additionally, the Company recognized $1.0 million of expenses related to the amendment of the Senior Secured Credit Facility in order to, among other things, reduce the interest rate applicable to the Company's term loan facility (the "Term Loan Facility") and to increase the limit of the Company's revolving credit facility (the "Revolving Credit Facility"). As a result, charges of $1.1 million were recorded during 2018 consisting principally of fees associated with the transaction and the write-off of unamortized deferred financing costs.Facilities.
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See Note 8, Debt and Credit Agreements, in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information.
Defined Benefit Pension Income (Expense)
Defined benefit pension income in 2021 was $15.6 million compared to defined benefit pension income of $7.1 million in 2020. This change is primarily the result of higher plan asset values at December 31, 2020.
Defined benefit pension income in 2020 was $7.1 million compared to defined benefit pension expense of $5.6 million in 2019. This change is primarily the result of higher plan asset values at December 31, 2019.
Income Tax ExpenseBenefit (Expense) from Continuing Operations
Income tax expense from continuing operations in 20182021 was $12.9 million, a decrease of $70.9$9.1 million, compared with 2017.income tax benefit from continuing operations of $8.7 million in 2020. The effective income tax rate relating to continuing operations for 2021 was 24.2% versus 16.0% for 2020. The increase in income tax expense and the effective tax rate was primarily due to the increase in operating income including decreased expenses from corporate strategic spending, disallowed interest expense in 2021 and recognition of net operating loss carrybacks in 2020 not recurring in 2021, offset by a $6.8 million Brazil tax benefit recorded in 2021 resulting from the recognition of deferred tax assets as well as the change in mix of income in various foreign countries.
Income tax benefit from continuing operations in 2020 was $8.7 million, compared with income tax expense from continuing operations of $12.7 million in 2019. The effective income tax rate relating to continued operations for 20182020 was 8.2%16.0% versus 87.8%41.0% for 2017.2019. The decrease in income tax expense and the effective income tax rate related to continuing operations was primarily due to the impactincreased acquisition and integration costs, decreased operation income due to impacts of the Tax Act. The Company recognizedCOVID-19 and a provisional $48.7$2.7 million favorable income tax charge as a result of revaluing the U.S. ending net deferred tax assets and liabilities for the year ended December 31, 2017 and made a favorable adjustment of a $15.4 million to the provisional amount during the fourth quarter 2018. Additionally, as a result of the Altek acquisition, an $8.3 million income tax benefit arising from the adjustment to certain existing deferred tax asset valuation allowances was realized.
See Note 11, Income Taxes, in Part II, Item 8, “Financial Statements and Supplementary Data" for additional information.
Gain on Sale of Discontinued Businesses
In January 2020, the Company sold IKG and recognized a gain on sale of $18.3 million pre-tax (or approximately $9 million after-tax).
In July 2019, the Company completed the sale of AXC for $600 million in cash and recognized a gain on sale of $527.9 million pre-tax (approximately $421 million after tax). In November 2019, the Company completed the sale of PK for $60 million cash and recognized a gain on sale of $41.2 million pre-tax (or approximately $33 million after-tax).
These transactions have been recorded in the Consolidated Statements of Operations as discontinued operations.
Income (Loss) from Discontinued Businesses
The operating results of the former Harsco Rail Segment and the former Harsco Industrial Segment, costs directly related to these disposals, an allocation of interest expense associated with mandatory debt repayments required as a result of the disposal of the former Harsco Industrial Segment and the write-off of deferred financing costs resulting from the mandatory repayment of debt have been reflected as discontinued operations in the Consolidated Statement of Operations for all periods presented. In addition, this caption includes costs directly attributable to retained contingent liabilities of the former Harsco Industrial Segment. The primary driver for the loss in 2021 is the recognition of forward loss provisions of $33.4 million for certain contracts in the Harsco Rail business. See Note 3, Acquisitions and Dispositions, in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information.
Total Other Comprehensive Income (Loss)
Total other comprehensive lossincome was $21.5$84.1 million in 2018,2021, compared with total other comprehensive incomeloss of $63.2$55.3 million in 2017.2020. The primary driver for this decrease was the net unfavorable impact of foreign currency translation due to the strengthening of the U.S. dollar against multiple currencies during 2018, partially offset byincrease is due to higher discount rates for the U.S. and U.K. pension plans.plans and a higher return on assets than expected for the U.S. pension plan.
Total other comprehensive incomeloss was $63.2$55.3 million in 2017,2020, compared with total other comprehensive loss of $93.6$0.1 million in 2016.2019. The major drivers for this change were pension liability adjustments and foreign currency translation adjustments. The pension liability adjustments were favorably impacted by actual returns on plan assets that were significantly higher than expected returns, partially offset byprimary driver of the decrease was due to lower discount rates for the U.S. and U.K. defined benefitpension plans. The foreign currency translation adjustments were positively impacted by the weakening of the U.S. dollar, particularly against the Euro and British Pound Sterling.
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Liquidity and Capital Resources
Cash Flow Summary
The Company hascurrently expects to have sufficient financial liquidity and borrowing capacity to support the strategies within each of its businesses.strategies. The Company currently expects operational and business needs to be met by cash provided by operations supplemented with borrowings from time to time principally under the Senior Secured Credit Facilities. The Company supplements the cash provided by operations with borrowings from time to time due to historical patterns of seasonal cash flow, and for the funding of various projects.projects and the impact of COVID-19. The Company regularly assesses capital needs in the context of operational trends and strategic initiatives.
The Company's cash flows from operating, investing and financing activities, as reflected on the Consolidated Statements of Cash Flows, are summarized in the following table:
| (In millions) | 2018 | 2017 | 2016 | (In millions) | 2021 | 2020 | 2019 | |||||||||||||||||||||||||
| Net cash provided (used) by: | Net cash provided (used) by: | |||||||||||||||||||||||||||||||
| Operating activities | $ | 192.0 | $ | 176.9 | $ | 159.9 | Operating activities | $ | 72.2 | $ | 53.8 | $ | (0.2) | |||||||||||||||||||
| Investing activities | (161.1 | ) | (103.3 | ) | 122.9 | Investing activities | (124.4) | (520.6) | (132.2) | |||||||||||||||||||||||
| Financing activities | (25.5 | ) | (83.7 | ) | (292.4 | ) | Financing activities | 60.2 | 487.0 | 125.7 | ||||||||||||||||||||||
| Impact of exchange rate changes on cash | (4.4 | ) | 4.5 | 1.7 | ||||||||||||||||||||||||||||
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (0.5) | (0.2) | (0.8) | ||||||||||||||||||||||||||||
| Net change in cash and cash equivalents | $ | 0.9 | $ | (5.7 | ) | $ | (7.9 | ) | Net change in cash and cash equivalents | $ | 7.5 | $ | 19.9 | $ | (7.4) | |||||||||||||||||
Cash provided (used) by operating activities — Net cash provided by operating activities in 20182021 was $192.0$72.2 million, an increase of $15.1$18.4 million from 2017.2020. The primary driver for this increase is primarily attributable to increased cashwas higher net income partially offset by increasedan unfavorable change in net working capital. The primary drivers of the unfavorable changes in net working capital and the timing of payment of income taxes and other accruals. Net cash provided by operating activities in 2017 was $176.9 million, an increase of $17.0 million from 2016. The increase is primarily attributable to the timing of accounts payable,included lower inventoriescustomer advances and an increase in cash net income. This increase was partially offset bycontract assets for the Rail business related to the continued build of long-term contracts and the timing of sales and collections of accounts receivable and a net decreaseprimarily in advances on contracts and other customer advances received and utilized. the Harsco Environmental Segment, partially offset by timing of accounts payable.
Also included in the Cash flows from operating activities section of the Consolidated Statements of Cash Flows is the caption, Other assets and liabilities. A summary of the major components of this caption for the periods presented is as follows:
| (In millions) | 2018 | 2017 | 2016 | (In millions) | 2021 | 2020 | 2019 | |||||||||||||||||||||||||
| Net cash provided (used) by: | Net cash provided (used) by: | |||||||||||||||||||||||||||||||
| Change in income taxes | $ | (15.3 | ) | $ | 0.9 | $ | 0.8 | Change in income taxes | $ | 4.8 | $ | (1.1) | $ | 5.3 | ||||||||||||||||||
| Change in prepaid expenses | 2.1 | (3.7 | ) | 6.7 | Change in prepaid expenses | (1.8) | (7.4) | (13.0) | ||||||||||||||||||||||||
| Change in non-current insurance accruals | (2.7 | ) | (3.0 | ) | (5.0 | ) | ||||||||||||||||||||||||||
| Change in contingent consideration liabilities | Change in contingent consideration liabilities | — | 0.3 | (8.2) | ||||||||||||||||||||||||||||
| Change in reserve for contract losses | Change in reserve for contract losses | 13.6 | (2.1) | (2.2) | ||||||||||||||||||||||||||||
Other (a) | (17.6 | ) | 9.2 | (15.8 | ) | Other (a) | 5.0 | 9.2 | (6.5) | |||||||||||||||||||||||
| Total change in other assets and liabilities | $ | (33.5 | ) | $ | 3.4 | $ | (13.3 | ) | ||||||||||||||||||||||||
| Total change in Other assets and liabilities | Total change in Other assets and liabilities | $ | 21.6 | $ | (1.1) | $ | (24.6) | |||||||||||||||||||||||||
(a) Other relates primarily to other accruals that are individually not significant. |
Cash provided (used)used by investing activities — Net cash used by investing activities in 20182021 was $161.1$124.4 million, an increasea decrease of $57.8$396.2 million from 2017.2020. The increase was primarily due todecrease reflected the Altek acquisition and an increasepurchase of the ESOL business in capital expenditures, primarily in the Company's Harsco Metals & Minerals Segment in 2018, compared with 2017;2020, partially offset by net foreign currency hedge settlement receipts. Net cash used by investing activities in 2017 was $103.3 million compared to a net cash provided by investing activities of $122.9 million in 2016. The change was primarily due to the gross proceeds received from the sale of the Company's investmentIKG business in Brand which occurred in September 20162020 and an increase inincreased net capital expenditures primarily in the Company's Harsco Metals & Minerals Segment, in 2017, compared with 2016 and higher net foreign currency hedge settlement payments.2021.
Cash usedprovided (used) by financing activities — Net cash usedprovided by financing activities in 20182021 was $25.5$60.2 million, a decrease of $58.2$426.7 million from 2017.2020. The change was primarily due todecrease reflected lower net cash borrowings of $13.8$423.7 million in 20182021 compared with netthe cash borrowing repayments of $75.2 million in 2017, partially offset by common stock repurchases of $30 million. The increased borrowings were used to fundpurchase the Altek acquisition and the increased capital expendituresESOL business in the Harsco Metals & Minerals Segment. In 2017, net cash used by financing activities was $83.7 million, a decrease of $208.6 million from 2016. The change was primarily due to lower repayments of the Company's borrowings in 2017; a deferred pension underfunding payment related to the Company's equity interest in Brand and payment of deferred financing costs which occurred in 2016 and did not repeat in 2017. This increase was partially offset by proceeds from the termination of cross-currency interest rate swaps which occurred in 2016 but did not repeat in 2017.2020.
Cash Requirements
The following summarizes the Company's expected future payments related to contractual obligations and commercial commitments at December 31, 2018:2021 to consist of:
| Payments Due by Period | ||||||||||||||||||||
| (In millions) | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||||||
| Short-term borrowings | $ | 10.1 | $ | 10.1 | $ | — | $ | — | $ | — | ||||||||||
| Long-term debt (including current maturities and capital leases) | 605.4 | 6.5 | 73.5 | 10.9 | 514.5 | |||||||||||||||
Projected interest payments on long-term debt (c) | 161.2 | 27.7 | 57.1 | 51.6 | 24.8 | |||||||||||||||
Purchase obligations (d) | 184.4 | 138.1 | 28.3 | 18.0 | — | |||||||||||||||
| Operating leases (non-cancellable) | 78.0 | 14.0 | 21.7 | 13.9 | 28.4 | |||||||||||||||
Pension obligations (e) | 29.5 | 29.5 | — | — | — | |||||||||||||||
Contingent consideration (f) | 8.4 | — | 8.4 | — | — | |||||||||||||||
Total contractual obligations (g) (h) | $ | 1,077.0 | $ | 225.9 | $ | 189.0 | $ | 94.4 | $ | 567.7 | ||||||||||
December 31, 2018,2021, including interest rate swaps currently in effect. The interest rates on variable-rate debt and the foreign currency exchange rates are subject to changes
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beyond the Company's control and may result in actual interest expense and payments differing from the amounts projected above.amounts.
•Expected employer contributions to defined benefit pension plans for the next year. See Note 10, Employee Benefit Plans, in Part II, Item 8 "Financial Statements and Supplementary Data," for additional information.
Off-Balance Sheet Arrangements
The following table summarizes the Company's contingent commercial commitments at December 31, 2018.2021. These amounts are not included on the Consolidated Balance Sheets since there are no current circumstances known to management indicating that the Company will be required to make payments on these contingent commercial commitments.
Commercial Commitments at December 31, 20182021
| Amount of Commercial Commitment Expiration Per Period | ||||||||||||||||||||||||||||||||||||||
| (In millions) | Total | Less than 1 Year | 1-3 Years | 3-5 Years | Over 5 Years | Indefinite Expiration | ||||||||||||||||||||||||||||||||
| Performance bonds | $ | 234.5 | $ | 226.9 | $ | 3.5 | $ | — | $ | — | $ | 4.1 | ||||||||||||||||||||||||||
| Standby letters of credit | 66.1 | 49.8 | 8.2 | 3.2 | 4.9 | — | ||||||||||||||||||||||||||||||||
| Guarantees | 218.8 | 0.2 | 1.1 | 4.2 | 209.5 | 3.8 | ||||||||||||||||||||||||||||||||
Total commercial commitments (b) | $ | 519.4 | $ | 276.9 | $ | 12.8 | $ | 7.4 | $ | 214.4 | $ | 7.9 | ||||||||||||||||||||||||||
| Amount of Commercial Commitment Expiration Per Period | ||||||||||||||||||||||||
| (In millions) | Total | Less than 1 Year | 1-3 Years | 3-5 Years | Over 5 Years | Indefinite Expiration | ||||||||||||||||||
| Performance bonds | $ | 151.4 | $ | 123.4 | $ | 26.3 | $ | — | $ | — | $ | 1.7 | ||||||||||||
| Standby letters of credit | 73.4 | 62.4 | 9.1 | 1.9 | — | — | ||||||||||||||||||
| Guarantees | 66.5 | 5.9 | 2.9 | 4.3 | — | 53.4 | ||||||||||||||||||
| Other commercial commitments | 11.2 | 0.1 | — | — | — | 11.1 | ||||||||||||||||||
| Total commercial commitments | $ | 302.5 | $ | 191.8 | $ | 38.3 | $ | 6.2 | $ | — | $ | 66.2 | ||||||||||||
Certain commercial commitments that are of a continuous nature do not have an expiration date and are therefore considered to be indefinite in nature. See Note 15, Financial Instruments, in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information.
Sources and Uses of Cash
The Company’s principal sources of liquidity are cash provided by operations and borrowings under the Senior Secured Credit Facility,Facilities, augmented by cash proceeds from asset sales. In addition, the Company has other bank credit facilities available throughout the world. The Company expects to continue to utilize all of these sources to meet future cash requirements for operations and growth initiatives.
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Summary of Senior Secured Credit Facilities and Notes: (In millions) | December 31 2021 | December 31 2020 | ||||||||||||
| By type: | ||||||||||||||
| Revolving Credit Facility | $ | 362.0 | $ | 281.0 | ||||||||||
| Term Loan B | — | 218.2 | ||||||||||||
| Term Loan A | — | 280.0 | ||||||||||||
| New Term Loan | 497.5 | — | ||||||||||||
| 5.75% Senior Notes | 500.0 | 500.0 | ||||||||||||
| Total | $ | 1,359.5 | $ | 1,279.2 | ||||||||||
| By classification: | ||||||||||||||
| Current | $ | 5.0 | $ | 10.5 | ||||||||||
| Long-term | 1,354.5 | 1,268.7 | ||||||||||||
| Total | $ | 1,359.5 | $ | 1,279.2 | ||||||||||
Senior Secured Credit Facilities
March 2021 Amendment
In June 2018,March 2021, the Company amended theits Senior Secured Credit Facility in orderFacilities to, among other things, reduceextend the interest rate applicable to the Term Loan Facility and to increase the limitmaturity date of the Revolving Credit Facility to March 10, 2026, and to modify aspects of its total net leverage ratio covenant. As a result of this amendment, the net debt to consolidated adjusted EBITDA ratio covenant was increased to 5.75 through December 2021 and then decreases quarterly until reaching 4.50 in December 2022 and 4.00 in March 2023.In addition, the Company issued the New Term Loan, as an additional tranche, under the Senior Secured Credit Facilities, in an aggregate principal amount of $500 million.The New Term Loan bears 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 Loan is subject to quarterly amortization of principal of 0.25%, beginning September 30, 2021. The proceeds of the New Term Loan were used to repay in full the outstanding Term Loan A chargeand Term Loan B under the Senior Secured Credit Facilities, which were due on June 28, 2024 and December 8, 2024, respectively.The New Term Loan matures on March 10, 2028, or earlier, on the date that is 91 days prior to the maturity date of $1.1the Company’s 5.75% Senior Notes, due 2027, if such Senior Notes are outstanding or have not been refinanced at such time.
In October 2021, the Company amended its Senior Secured Credit Facilities to, among other things, to make certain amendments in connection with the discontinuation of LIBOR.
At December 31, 2021, the Company was in compliance with all covenants for the Senior Secured Credit Facilities. During the twelve months ended December 31, 2021, 2020 and 2019, the Company recognized $5.5 million, was recorded during 2018 consisting principally$1.9 million and $1.0 million, respectively, of fees associated withand expenses related to amendments to the transactionSenior Secured Credit Facilities in the caption Unused debt commitment, amendment fees and loss on the extinguishment of debt on the Consolidated Statements of Operations.The amount for 2021 includes a write-off of unamortized$2.7 million of previously recorded deferred financing costs.The Company capitalized fees of $7.8 million related to the March 2021 Amendment.
In addition, on February 22, 2022, the Company amended its Senior Credit Facilities (“Amendment No. 9 to the Third Amended and Restated Credit Agreement”) to reset the levels of the net debt to consolidated adjusted EBITDA ratio covenant.As a result of this amendment, the net debt to consolidated adjusted EBITDA ratio covenant was set at 5.75 for the quarter ending March 31, 2022, and then decreases quarterly by 0.25 until reaching 4.00 for the quarter ending December 31, 2023 and thereafter. In addition, upon closing on the divestiture of the former Harsco Rail Segment, the net debt to consolidated adjusted EBITDA ratio covenant will decrease by an additional 0.25, provided, however, it will not go below 4.00.
See Note 8, Debt and Credit Agreements,20 Subsequent Events, in Part II, Item 8, "Financial Statements and Supplementary Data"Data," and Item 9B Other Information for additional information.
The Senior Secured Credit FacilityAgreement imposes certain restrictions including, but not limited to, restrictions as to types and amounts of debt andor liens that may be incurred by the Company; limitations on increases in dividend payments; limitations on repurchases of the Company's stock and limitations on certain acquisitions by the Company.
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With respect to the Senior Secured Credit Facilities, the obligations of the Company are guaranteed by substantially all of the Company’s current and future wholly-owned domestic subsidiaries (“Guarantors”). All obligations under the Senior Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Guarantors.
Revolving Credit Facility
Borrowings under the Revolving Credit Facility, a U.S.-based program, bear interest at a rate per annum ranging from 50 to 150 basis points over the base rate or 150 to 250 basis points over adjusted LIBOR rateas defined in the interest calculation, ranging from 1.65% for 2018Credit Agreement, subject to 3.12% for 2022. The total notional ofa 0% floor. Any principal amount outstanding under the Company's interest rate swaps was $300.0 million as of December 31, 2018.Revolving Credit Facility is due and payable on its maturity on March 10, 2026.
Summary of Senior Secured Credit Facility Borrowings: (In millions) | December 31 2018 | December 31 2017 | ||||||
| By type: | ||||||||
| Revolving Credit Facility | $ | 62.0 | $ | 41.0 | ||||
| Term Loan Facility | 541.8 | 545.9 | ||||||
| Total | $ | 603.8 | $ | 586.9 | ||||
| By classification: | ||||||||
| Current | $ | 5.4 | $ | 5.5 | ||||
| Long-term | 598.3 | 581.4 | ||||||
| Total | $ | 603.8 | $ | 586.9 | ||||
The following table illustratesshows the amount outstanding under the Revolving Credit Facility and available credit at December 31, 2018:2021.
| December 31, 2021 | ||||||||||||||||||||||||||
| (In thousands) | Facility Limit | Outstanding Balance | Outstanding Letters of Credit | Available Credit | ||||||||||||||||||||||
| Revolving Credit Facility (a U.S.-based program) | $ | 700,000 | $ | 362,000 | $ | 29,824 | $ | 308,176 | ||||||||||||||||||
| (In millions) | Facility Limit | Outstanding Balance | Outstanding Letters of Credit | Available Credit | ||||||||||||
| Multi-year revolving credit facility | $ | 500.0 | $ | 62.0 | $ | 30.4 | $ | 407.6 | ||||||||
In 2019, the Company announcedrecognized $6.7 million of expenses in the caption Unused commitment, amendment fees and loss on extinguishment of debt on the Consolidated Statements of Operations, for fees and other costs related to bridge financing commitments that the Board authorized a share repurchase program pursuantCompany arranged in the event that the Senior Notes were not issued prior to which the Company could repurchase shares in an amount upacquisition of Clean Earth.The Senior Notes were issued prior to $75 million. The extent to whichcompletion of the Company repurchases shares, andClean Earth acquisition thus the timing of such repurchases, will depend upon a variety of factors including market conditions and other corporate considerations as determined by the Company’s management. The repurchase program may be suspended or discontinued at any time. During 2018, the Company purchased 1.3 million shares of common stock under this program at an average price of $22.72 per share or a total of approximately $30 million.bridge financing commitments were not utilized.
Certainty of Cash Flows
The majority of the Company's cash flows provided by operations has historically been generated in the second half of the year. The certainty of the Company's future cash flows is underpinned by the long-term nature of the Company's metalsHE services contracts, the order backlog forrecurring nature of revenues within the Company's railway track maintenance services and equipmentClean Earth Segment and overall discretionary cash flows (operating cash flows plus cash from asset sales in excess of the amounts necessary for capital expenditures to maintain current revenue levels) generated by the Company. Historically, the Company has utilized these discretionary cash flows for growth-related capital expenditures, strategic acquisitions, and debt repayment and dividend payments.repayment.
The types of products and services that the Company provides are not subject to rapid technological change, which increases the stability of related cash flows. Additionally, the Company believes each business in its portfolio is a leader in the industries and major markets the Company serves. Due to these factors, the Company is confident in the Company's future ability to generate positive cash flows from operations.
Debt Covenants
The Senior Secured Credit AgreementFacility contains a consolidated net debt to consolidated adjusted earnings before interest, tax, depreciation and amortization ("EBITDA")EBITDA ratio covenant, which is not to exceed 3.75 to 1.05.75 at December 31, 2021, and a minimum consolidated adjusted EBITDA to consolidated interest charges ratio covenant, which is not to be less than 3.0 to 1.0. The consolidated net debt to consolidated adjusted EBITDA ratio covenant is reduced to 3.5 to 1.0 after December 31, 2018.3.0. At December 31, 2018,2021, the Company was in compliance with these covenants as the net leverage ratio was 1.74.6 to 1.0 and interest coverage ratio was 8.64.4 to 1.0. Based on balances and covenants in effect at December 31, 2018,2021, the Company could increase net debt by $681.1$338.6 million and still be in compliance with these debt covenants. Alternatively, keeping all other factors constant, the Company's adjusted EBITDA could decrease by $181.6$58.9 million, and the Company would still be within these debt covenants. The Company expects to continue to beremain in compliance with these debtcovenants. The Company has estimated the negative impact of COVID-19 on its financial position, results of operations and cash flows, and believes it will continue to maintain compliance with these covenants for at leastbased on its current outlook. However, the next twelve months.Company's estimates of compliance with these covenants could change in the future with a deterioration in economic conditions including as a result of COVID-19 and the related impacts.
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Cash Management
The Company has various cash management systems throughout the world that centralize cash in various bank accounts where it is economically justifiable and legally permissible to do so. These centralized cash balances are then redeployed to other operations to reduce short-term borrowings and to finance working capital needs or capital expenditures. Due to the transitory nature of cash balances, they are normally invested in bank deposits that can be withdrawn at will or in very liquid short-term bank time deposits and government obligations. The Company's policy is to use the largest banks in the various countries in which the Company operates. The Company monitors the creditworthiness of banks and, when appropriate, will adjust banking operations to reduce or eliminate exposure to less creditworthy banks. The Company plans to continue the strategy of targeted, prudent investing for strategic purposes for the foreseeable future and to make more efficient use of existing investments.
At December 31, 2018,2021, the Company's consolidated cash and cash equivalents included $61.5$80.8 million held by non-U.S. subsidiaries. At December 31, 2018, less than 5%2021, approximately 4% of the Company's consolidated cash and cash equivalents had regulatory restrictions that would preclude the transfer of funds with and among subsidiaries. Non-U.S. subsidiaries also held $19.1$24.4 million of cash and cash equivalents in consolidated strategic ventures. The strategic venture agreements may require strategic venture partner approval to transfer funds with and among subsidiaries. While the Company's remaining non-U.S. cash and cash equivalents can be transferred with and among subsidiaries, the majority of these non-U.S. cash balances will be used to support the ongoing working capital needs and continued growth of the Company's non-U.S. operations.
Application of Critical Accounting Policies and Critical Accounting Estimates
The Company's discussion and analysis of its financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. ("U.S. GAAP").GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, the Company evaluates theits critical accounting estimates, including those related to defined benefit pension benefits, notes and accounts receivable, fair value estimates for business combinations and goodwill, long-lived asset impairment, inventories, revenue recognition - cost-to-cost method, insurance reserves and income taxes. The impact of changes in these estimates, as necessary, is reflected in the respective segment's results of operations in the period of the change. The Company bases estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different outcomes, assumptions or conditions.
The Company believes the following critical accounting policies are affected by the Company's more significant judgments and estimates used in the preparation of the consolidated financial statements. Management has discussed the development and selection of the critical accounting estimates described below with the Audit Committee of the Board and they have reviewed the Company's disclosures relating to these estimates in this Management's Discussion and Analysis of Financial Condition. These items should be read in conjunction with Note 1, Summary of Significant Accounting Policies, in Part II, Item 8, "Financial Statements and Supplementary Data."
Defined Benefit Pension Benefits
The Company has defined benefit pension plans in several countries. The largest of these plans are in the U.K. and the U.S. The Company's funding policy for these plans is to contribute amounts sufficient to meet the minimum funding pursuant to U.K. and U.S. statutory requirements, plus any additional amounts that the Company may determine to be appropriate.
Changes in the discount rate assumption and the actual performance of plan assets compared with the expected long-term rate of return on plan assets are the primary drivers in the change in funded status of the Company's defined benefit pension plans. These factors are components of actuarial loss (gain) and impact the amount recognized in Other comprehensive income (loss),OCI, as such actuarial changes are not reflected directly on the Consolidated Statements of Operations but amortized over time in accordance with U.S. GAAP.
Critical Estimate—Defined Benefit Pension Benefits
Accounting for defined benefit pension plans requires the use of actuarial assumptions. The principal assumptions used include the discount rate and the expected long-term rate of return on plan assets. Each assumption is reviewed annually and represents management's best estimate at that time. The assumptions are selected to represent the average expected experience over time and may differ, in any one year, from actual experience due to changes in capital markets and the overall economy. These differences will impact the amount of unfunded benefit obligation and the expenseNPPC recognized.
The discount rates used in calculating the Company's projected benefit obligations at the December 31, 20182021 measurement date for the U.K. and U.S. defined benefit pension plans were 2.9%1.8% and 4.2%2.7%, respectively, and the global weighted-average discount rate was 3.2%2.1%. The discount rates selected represent level-equivalent rates using the yield curve spot rates on a year-by-year expected cash flow basis, using yield curves of high-quality corporate bonds. Annual NPPC is determined using the
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discount rates at the beginning of the year. The discount rates for 2018 expense2021 NPPC were 2.5%1.4% for the U.K. plan, 3.5%2.4% for the U.S. plans and 2.8%1.6% for the global weighted-average of plans.
The expected long-term rate of return on plan assets is determined by evaluating the asset return expectations with the Company's advisors as well as actual, long-term, historical results of asset returns for the pension plans. Generally, the NPPC increases as the expected long-term rate of return on assets decreases. For 20192021 and 2018,2020, the global weighted-average expected long-term rate of return on asset assumption is 5.9%was 5.1% and 6.0%5.6%, respectively. This rate was determined based on a model of expected asset returns for an actively managed portfolio.
Changes in NPPC may occur in the future due to changes in actuarial assumptions and due to changes in returns on plan assets resulting from financial market conditions. Holding all other assumptions constant, using December 31, 20182021 plan data, a one-quarter percent increase or decrease in the discount rate and the expected long-term rate of return on plan assets would increase or decrease annual 20182022 pre-tax defined benefit NPPC (expense) as follows:
| U.S. Plans | U.K. Plan | |||||||||||||
| Discount rate | ||||||||||||||
| One-quarter percent increase | Increase of $0.1 million | Decrease of | ||||||||||||
| One-quarter percent decrease | Decrease of $0.1 million | Increase of | ||||||||||||
| Expected long-term rate of return on plan assets | ||||||||||||||
| One-quarter percent increase | Decrease of $0.5 million | Decrease of | ||||||||||||
| One-quarter percent decrease | Increase of $0.5 million | Increase of | ||||||||||||
Increases or decreases to the net pension obligations may be required should circumstances that affect these estimates change. Additionally, certain events could result in the pension obligation changing at a time other than the annual measurement date. This would occur when a benefit plan is amended or when plan curtailments or settlements occur.
See Note 10, Employee Benefit Plans, in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information.
The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company has policies and procedures in place requiringgenerally assesses future economic conditions for a period which corresponds with the contractual life of its accounts receivable. Additionally, specific allowance amounts are established to record the appropriate provision for customers to be evaluated for creditworthiness priorthat have a higher probability of default.
Prior to the executionadoption of new service contracts or shipments of products. These reviews are structured to minimize the Company's risk related to realizability of receivables. Despite these policies and procedures,expected credit loss allowance methodology on January 1, 2020, the Company may at times stillestablished an allowance for doubtful accounts based upon a specific-identification method, as well as historical collection experience, collection problems and potential bad debts due to economic conditions within certain industries (e.g., steel industry), countries or regions in which the Company operates.as appropriate. At December 31, 20182021 and 2017,2020, trade accounts receivable of $291.2$377.9 million and $288.0$355.3 million,, respectively, were net of reserves of $4.6$7.3 million and $4.7$7.5 million,, respectively.
Critical Estimate—Notes and Accounts Receivable
A considerable amount of judgment is required to assess the realizability of receivables, including the current creditworthiness of each customer, related aging of past due balances and the facts and circumstances surrounding any non-payment. The Company's provisions for bad debtsexpected credit losses and doubtful accounts during 20182021, 2020 and 20172019 were $0.4$0.6 million, $2.0 million and $5.3$7.1 million, respectively. The Company did not make any significant provisions for bad debts during 2016.
On at least a monthlyquarterly basis, customer accounts are analyzed for collectability. Reserves are established based upon a specific-identification method as well as historical collection experience, as appropriate. The Company also evaluates specific accounts when it becomes aware of a situation in which a customer may not be able to meet its financial obligations due to a deterioration in financial condition,the expected credit ratings, bankruptcy or receivership. The reservesloss allowance methodology noted above. Reserves are based on the facts available to the Company and are re-evaluated and adjusted as additional information becomes available. Reserves are also determined by using percentages (based upon experience) applied to certain aged receivable categories. Specific issues are discussed with corporate management and any significant changes in reserve amounts or the write-off of balances must be approved by specifically designated corporate personnel. All approved items are monitored to ensure they are recorded in the proper period. Additionally, any significant changes in reserve balances are reviewed to ensure the proper corporate approval has occurred.
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If the financial condition of the Company's customers were to deteriorate, resulting in their inability to make payments, additional allowances may be required. Conversely, an improvement in a customer's ability to make payments could result in a decrease of the allowance for doubtful accounts. Changes in the allowance for doubtful accounts related to both of these situations would be recorded through Operating income from continuing operations in the period the change was determined. As previously disclosed, one of the Company's customers for the Harsco Metals & Minerals Segment in Australia had entered into the process of voluntary administration under Australian law, the purpose of which was to focus on long-term solvency. The result of this administration process was that the customer's operations were sold to a new owner in August 2017. In September 2017, the administrators informed the Company that most of the pre-administration accounts receivable balance would not be paid, and as a result the Company recorded a bad debt expense of $4.6 million during the third quarter of 2017. The Company continues to provide services for the new owner pending a formalization of a new contract.
Fair Value Estimates for Business Combinations and Goodwill
The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, all assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, be recorded at their respective fair values at the date of acquisition. During 2020, the Company acquired 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. During 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, and soil and dredged materials. See Note 3, Acquisitions and Dispositions, in Part II, Item 8, “Financial Statements and Supplementary Data,” for additional information.
The Company's goodwill balances were $411.6$883.1 million and $401.8$889.0 million at December 31, 20182021 and 2017,2020, respectively. The Company performs theits annual goodwill impairment test as of October 1. 1.
Critical Estimate—Business Combinations and Goodwill
The Company has five reporting units (only threeacquisition method of which have goodwill associatedaccounting requires the excess of purchase price over the fair values of identifiable assets and liabilities to be recorded as goodwill. The determination of fair value of assets acquired and liabilities assumed requires numerous estimates and assumptions with them as of December 31, 2018). The Company's reporting units with goodwill are the Harsco Metals & Minerals Segment, the Harsco Rail Segment and the air-cooled heat exchanger business of the Harsco Industrial Segment. Almost all of the Company's goodwill is allocatedrespect to the Harsco Metals & Minerals Segment.
In accordance with U.S. GAAP, goodwill is not amortized and is tested for impairment at least annually or more frequently if indicators of impairment exist or if a decision is made to dispose of a business. Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment for which discrete financial information is available. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include declining cash flows or operating losses at the reporting unit level, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel or a more likely than not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, among others.
The evaluationquantitative approach of potentialtesting for goodwill impairment involves comparing the current fair value of each reporting unit to the net book value, including goodwill. The Company uses a discounted cash flow model (“DCF model”) to estimate the current fair value of reporting units, as management believes forecasted operating cash flows are the best indicator of current fair value. A number of significant assumptions and estimates are involved in the preparation of DCF models including future revenues and operating margin growth, the weighted-average cost of capital (“WACC”), tax rates, capital spending, pension funding, the impact of strategic business initiatives and working capital projections. These assumptions and estimates may vary significantly among reporting units. DCF models are based on approved long-range plans for the early years and historical relationships and projections for later years. WACC rates are derived from internal and external factors including, but not limited to, the average market price of the Company's stock, shares outstanding, book value of the Company's debt, the long-term risk-free interest rate, and both market and size-specific risk premiums. Due to the many variables noted above and the relative size of the Company's goodwill, differences in assumptions may have a material impact on the results of the Company's annual goodwill impairment testing. If the net book value of a reporting unit were to exceed the current fair value, the second step of the goodwill impairment test would currently be required to determine ifthen an impairment existedcharge would be recognized as the difference between the fair value and the amount of goodwill impairment to record, if any. The second step of the goodwill impairment test compares the net book value of a reporting unit's goodwill with the implied fair value of that goodwill. The implied fair value of goodwill represents the excess of fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of the reporting unit if it were to be acquired in a hypothetical business combination and the current fair value of the reporting unit represented the purchase price. The second step of the goodwill impairment test may require the utilization of valuation experts.value.
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The performance of the Company’s 20182021 annual impairment tests did not result in any impairment of the Company’s goodwill.
See Note 1, Summary of Significant Accounting Policies and Note 7, Goodwill and Other Intangible Assets, in Part II, Item 8, “Financial Statements and Supplementary Data,” for additional information.
Long-lived Asset Impairment (Other than Goodwill)
Long-lived assets (or asset groups) are reviewed for impairment when events and circumstances indicate that the book value of an asset (or asset group) may be impaired. The amounts charged against pre-tax income from continuing operations related to impaired long-lived assets (or asset groups) included in Other (income) expenses, net on the Consolidated Statements of Operations were $0.1 million, $1.0 million, $0.8 million and $0.4$0.6 million in 2018, 20172021, 2020 and 2016,2019, respectively.
Critical Estimate—Asset Impairment
The determination of a long-lived asset (or asset group) impairment involves significant judgments based upon short-term and long-term projections of future asset (or asset group) performance. If the undiscounted cash flows associated with an asset (or asset group) do not exceed the asset's book value, impairment loss estimates would be based upon the difference between the book value and fair value of the asset (or asset group). The fair value is generally based upon the Company's estimate of the amount that the assets (or asset group) could be bought or sold for in a transaction between willing parties. If quoted market prices for the asset (or asset group) or similar assets are unavailable, the fair value estimate is generally calculated using a DCF model. Should circumstances change that affect these estimates, additional impairment charges may be required and would be recorded through income in the period the change was determined.
The Company has not materially changed theits methodology for calculating long-lived asset impairments for the years presented. U.S. GAAP requires consideration of all valuation techniques for which market participant inputs can be obtained without undue cost and effort. The use of a DCF model continues to be an appropriate method for determining fair value; however, methodologies such as quoted market prices must also be evaluated.
Because of the lower-than-expected results for the Altek Group of the Harsco Environmental Segment for 2021 due to the timing of customer orders, the Company tested Altek’s asset group's recoverability in the fourth quarter of 2021. The asset group primarily consists of intangible assets which had a carrying value of $39.9 million at the measurement date. Recoverability of the carrying value of the asset groups was based upon estimated future cash flows while taking into consideration various assumptions and estimates, including future use of the assets, remaining useful life of the assets, and eventual disposition of the assets. Undiscounted estimated cash flows of the Altek asset group exceeded the carrying value, therefore, no impairment was recorded. If actual results prove inconsistent with the Company’s assumptions and judgments, it could result in impairment of the Altek intangible assets in future periods.
See Note 18, Other (Income) Expenses, Net in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information.
Inventories
Critical Estimate—Inventories
In assessing the realization of inventory balances, the Company is required to make judgments as to future demand and compare these with current or committed inventory levels. If actual market conditions are determined to be less favorable than those projected by management, additional inventory write-downs may be required and would be recorded through Operating income from continuing operations in the period the determination is made. Additionally, the Company records reserves to adjust a substantial portion of its U.S. inventory balances to the LIFO method of inventory valuation. In adjusting these reserves throughout the year, the Company estimates its year-end inventory costs and quantities. At December 31 of each year, the reserves are adjusted to reflect actual year-end inventory costs and quantities. During periods of inflation, LIFO expense usually increases and during periods of deflation it decreases. These year-end adjustments resulted in pre-tax expense of $1.0$0.5 million in 20182021, pre-tax income of $0.2 million in 2020 and pre-tax income of $2.0 million and $1.2$0.4 million in 2017 and 2016, respectively.2019.
The Company has not materially changed theits methodology for calculating inventory reserves for the years presented. See Note 4, Accounts Receivable and5, Inventories, in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information.
Revenue Recognition - Cost-to-costCost-to-Cost Method
For certain contracts with customers, which meet specific criteria established in U.S. GAAP, the Company recognizes revenue on an over time basis utilizing an input method based on costs incurred (“cost-to-cost method”) to measure progress, which
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requires the Company to make estimates regarding the revenues and costs associated with design, manufacturing and delivery of products.
Critical Estimate—RevenueEstimate-Revenue Recognition - Cost-to-costCost-to-Cost Method
The Company uses the cost-to-cost method to measure progress because it is the measure that best depicts the transfer of control to the customer, which occurs as the Company incurs costs under the contracts. Under the cost-to-cost method, the extent of progress towards completion is based on the ratio of costs incurred to total estimated costs at completion which includes both actual costs already incurred and the estimated costs to complete. Accounting for contracts with customers using the cost-to-cost method requires significant judgment relative to assessing risks, estimating contract revenues (including estimates of variable consideration, if applicable), estimating contract costs (includingapplicable, as well as estimating any liquidating damages or penalties related to performance); estimating contract costs (including estimating engineering costs to design the machine and the material, labor and overhead manufacturing costs to build the machine); making assumptions for schedule and technical items; properly executing the engineering and design phases consistent with customer expectations; the availability and costs of labor and material resources; productivity; and evaluating whether a significant financing component is present. Due to the number of years it may take to complete certain contracts and the scope and nature of the work required to be performed on those contracts, primarily in the former Harsco Rail Segment,Segment's business, estimating total revenues and costs at completion is inherently complicated and subject to many variables. Accordingly, estimates are subject to change as experience is gained and as more information is obtained, even though the scope of the work under the contract may not have changed. When adjustments in estimated total contract sales or estimated total costs are required, any changes from prior estimates are recognized in current period earnings for the inception-to-date effect of such changes. When estimates of total costs to be incurred on a contract using the cost-to-cost method exceed estimates of total sales to be earned, a provision for the entire loss on the contract is recorded in current period earnings when the loss is determined.
The Company recognized an initial estimated forward loss provision related to theCompany's former Harsco Rail Segment is currently manufacturing highly-engineered equipment under large long-term fixed-price contracts with the federalSBB, the infrastructure manager for most of the railway systemin the U.K. ("Network Rail"), and the national railway company in Germany ("Deutsche Bahn"). Post-engineering, the Company has made significant progress in the development of Switzerland ("SBB")the prototype/initial units for certain portions of $45.1 millionthese contracts during the fourth quarter of 2021, which has provided clarity in terms of material requirements and associated cost impacts. As a result, in the fourth quarter of 2021, the Company recognized estimate forward loss provisions related to these contracts of $33.4 million. The principal driver of the provisions was recent expected cost inflation for all contracts, including for vendors in Europe who perform the manufacturing and assembly of certain equipment under these contracts. In addition, the estimate for liquidated damages for delivery delays for the year ended December 31, 2016. The Company recorded an additional forward loss provision of $1.8 million for the year ended December 31, 2018. At December 31, 2018, the entire remaining estimated forward loss provision of $9.6 million is included in the caption Other current liabilitiesNetwork Rail contract was increased based on the Consolidated Balance Sheets.current status of negotiations with the customer during the quarter, as well as delayed prototype build and the resulting delayed delivery schedule. 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.
Insurance Reserves
The Company retains a significant portion of the risk for U.S. workers' compensation, U.K. employers' liability, automobile, general and product liability losses. At December 31, 20182021 and 2017,2020, the Company recorded liabilities of $60.3$28.3 million and $33.6$27.3 million,, respectively, related to both asserted and unasserted insurance claims. At December 31, 20182021 and 2017,2020,
$34.24.1 million and $4.1$5.2 million, respectively, was included in insurance liabilities related to claims covered by insurance carriers for which a corresponding receivable has been recorded.
Critical Estimate—Insurance Reserves
Insurance reserves have been recorded based upon actuarial calculations that 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)decreases to insurance reserves may be required and would be recorded through Operating income from continuing operations in the period the change was determined. During 2018, 20172021, 2020 and 2016,2019, the Company recorded a retrospective insurance reserve adjustmentadjustments that decreased pre-tax insurance expense from continuing operations for self-insured programs by $2.7$0.2 million,,
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The Company has not materially changed theits methodology for calculating insurance reserves for the years presented. There are currently no known trends, demands, commitments, events or uncertainties that are reasonably likely to occur that would materially affect the methodology or assumptions described above. See Note 1, Summary of Significant Accounting Policies, in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information.
Income Taxes
The Company's income tax expense, deferred tax assets and liabilities and reserves for uncertain tax positions reflect management's best estimate of taxes to be paid. The Company is subject to various international, federal, state and local income taxes in jurisdictions where the Company operates. In determining income tax expense, the Company makes its best estimate of the annual effective income tax rate at the end of each quarter and applies that rate to year-to-date income (loss) before income taxes to arrive at the year-to-date income tax provision (exclusive of loss jurisdictions for which no tax benefit is realizable with any discrete tax items recorded separately). At December 31, 2018, 20172021, 2020 and 2016,2019, the Company's annual effective income tax rate on income from continuing operations was 8.2%24.2%, 87.8%16.0% and (8.4)%41.0%, respectively.
Critical Estimate—Income Taxes
Annual effective income tax rates are estimated by giving recognition to currently enacted tax rates, tax holidays, tax credits, capital losses and tax deductions as well as certain exempt income and non-deductible expenses for all jurisdictions where the Company operates. Quarterly income tax provisions incorporate any change in the year-to-date provision from the previous quarterly periods.
The Company records deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determinations, the Company considers all available evidence, including future reversals of existing deferred tax liabilities, projected future taxable income, feasible and prudent tax planning strategies and recent financial operating results. In the eventIf the Company was to determinedetermines that it wouldwill not be able to realize deferred income tax assets in the future, a valuation allowance is recorded. If sufficient positive evidence arises in excessthe future indicating that all or a portion of their net recorded amount, an adjustment tothe deferred tax assets meet the more likely than not standard for realization, the valuation allowance would be madereduced accordingly in the period that would reduce the provision for income taxes.such a conclusion is reached.
Valuation allowances of $138.9$92.4 million and $174.2$108.6 million at December 31, 20182021 and 2017,2020, respectively, related principally to deferred tax assets for pension liabilities, NOLs, foreign tax credit carryforwards capital loss carryforwards and foreign currency translation that are uncertain as to realizability. In 2018,2021, the Company finalized the impact of the Tax Act and reduced the provisional valuation allowance by $15.2 million because of the expected realization of foreign tax credit and state net operating loss carryforward. In addition, the U.K. valuation allowance was reduced by $13.6 million as a result of the Altek acquisition and change in estimates of interest deductions. The Company recorded a valuation allowance reduction of
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, including resolutions of any related appeals or litigation processes, based on its technical merits. The unrecognized tax benefits at December 31, 20182021 and 20172020 were $2.4 million$3.1 and $3.6$2.9 million, respectively, excluding accrued interest and penalties. The unrecognized income tax benefit may decrease as a result of the lapse of statute of limitations or as a result of final settlement and resolution of outstanding tax matters in various state and international jurisdictions.
The Company has not materially changed the methodology for calculating income tax expense, deferred tax assets and liabilities and reserves for uncertain tax positions for the years presented or for quarterly periods. See Note 11, Income Taxes, in Part II, Item 8, "Financial Statements and Supplementary Data," for additional information.
| Research and Development Expenses | ||||||||||||
| (In millions) | 2018 | 2017 | 2016 | |||||||||
| Harsco Metals & Minerals | $ | 1.6 | $ | 1.3 | $ | 0.9 | ||||||
| Harsco Industrial | 1.6 | 1.5 | 1.5 | |||||||||
| Harsco Rail | 2.3 | 1.4 | 1.9 | |||||||||
| Total research and development expenses | $ | 5.5 | $ | 4.2 | $ | 4.3 | ||||||
Recently Adopted and Recently Issued Accounting Standards
Information on recently adopted and recently issued accounting standards is included in Note 2, Recently Adopted and Recently Issued Accounting Standards, in Part II, Item 8, "Financial Statements and Supplementary Data."
Item 7A. Quantitative and Qualitative Disclosures aboutAbout Market Risk.
See the Risk Factors captioned "Exchange rate fluctuations may adversely impact the Company's business," "The Company is exposed to counterparty risk in its derivative financial arrangements" and "The Company's variable rate indebtedness subjects it to interest rate risk, which could cause the Company's debt service obligations to increase significantly" in Part I, Item 1A, "Risk Factors," for quantitative and qualitative disclosures about market risk.
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Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements and Supplementary Data
| Page | |||||
| Consolidated Financial Statements of Harsco Corporation: | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) | |||||
| Supplementary Data (Unaudited): | |||||
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Management's Report on Internal Control Over Financial Reporting
Management of Harsco Corporation, together with its consolidated subsidiaries (the "Company"), is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Securities Exchange Act of 1934 Rule 13a-15(f) or 15d-15(e)15d-15(f). The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
The Company's internal control over financial reporting includes policies and procedures that:
•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management has assessed the effectiveness of its internal control over financial reporting atas of December 31, 20182021 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company's internal control over financial reporting was effective at as of December 31, 2018.2021.
The effectiveness of the Company's internal control over financial reporting at as of December 31, 20182021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing in Part II, Item 8 of this Annual Report on Form 10-K, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting at December 31, 2018.
10-K.
| /s/ F. NICHOLAS GRASBERGER III | /s/ | |||||||
F. Nicholas Grasberger III Chairman, President and Chief Executive Officer | Senior Vice President and Chief Financial Officer | |||||||
| February | February | |||||||
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Report of Independent Registered Public Accounting Firm
To theStockholders and Board of Directors of Harsco Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Harsco Corporation and its subsidiaries (the “Company”) as of December 31, 20182021 and 20172020, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2018,2021, including the related notes and financial statement schedule listed in the index appearing under Item15(a)Item 15(a)(2) (collectively referred to as the “consolidatedfinancial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 20182021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework (2013)issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessments – Environmental and Clean Earth Reporting Units
As described in Notes 1 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $883.1 million as of December 31, 2021, and the goodwill associated with the Environmental and Clean Earth reporting units was $399.2 million and $483.9 million, respectively. The Company performs the annual goodwill impairment test as of October 1, or more frequently if indicators of impairment exist, or if a decision is made to dispose of a business. If after assessing qualitative factors the Company determines it is “more-likely-than-not” that the fair value of a reporting unit is less than the carrying value, the Company compares the current fair value of the reporting unit to the carrying value, including goodwill. The Company uses a discounted cash flow model to estimate the current fair value of reporting units. A number of significant assumptions and estimates are involved in the preparation of the discounted cash flow model, including future revenues, operating margin growth, the weighted-average cost of capital, tax rates, capital spending, pension funding, the impact of business initiatives and working capital projections.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments of the Environmental and Clean Earth reporting units is a critical audit matter are the significant judgment by management when developing the fair value measurements of the reporting units; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assumptions related to future revenues, operating margin growth, and the weighted-average costs of capital. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Company’s Environmental and Clean Earth reporting units. These procedures also included, among others (i) testing management’s process for developing the fair value estimates, (ii) evaluating the appropriateness of the discounted cash flow models, (iii) testing the completeness and accuracy of underlying data used in the models, and (iv) evaluating the assumptions used by management related to future revenues, operating margin growth and the weighted-average costs of capital. Evaluating management’s assumptions related to future revenues and operating margin growth involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow models and the weighted-average costs of capital assumptions.
Revenue Recognition using the Cost-to-Cost Method - Harsco Rail
As described in Notes 1 and 3 to the consolidated financial statements, Harsco Rail's total product revenues was $266.2 million, which included approximately $102 million related to revenue recognized over time using the cost-to-cost method. The Company uses the cost-to-cost method to measure progress because management believes it is the measure that best depicts the transfer of control to the customer, which occurs as costs are incurred under the contracts. Accounting for contracts with customers using the cost-to-cost method requires significant judgment relative to assessing risks, estimating contract revenues (including estimates of variable consideration, if applicable as well as estimating any liquidating damages or penalties related to performance), estimating contract costs (including engineering costs to design the machine and material, labor, and overhead manufacturing costs to build the machine); making assumptions for schedule and technical items, properly executing the engineering and design phases consistent with customer expectations, the availability and costs of labor and material resources; productivity; and evaluating whether a significant financing component is present.
45
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the determination of estimated contract revenues and costs. The procedures also included, among others, evaluating and testing management’s process for developing the estimated variable consideration and costs at completion for certain open contracts, which included evaluating the reasonableness of assumptions used by management related to liquidating damages, the engineering costs to design the machine and the material, labor, and overhead manufacturing costs to build the machine. Evaluating the reasonableness of the assumptions involved assessing management’s ability to reasonably estimate variable consideration and costs to complete contracts by testing management’s process for evaluating the Company’s ability to properly develop the estimated variable consideration, including assessing the likelihood and amount of relief that will be negotiated with the customer, and costs to complete a contract, including comparing the actual cost of completed contracts to the estimated cost at completion for similar contracts, using actual costs to date to assess the reasonableness of the estimate of the remaining costs to complete the contract, and physically observing the progress of open contracts.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 24, 2022
We have served as the Company'sCompany’s auditor since at least 1933. We have not determinedbeen able to determine the specific year we began serving as the auditor of the Company.
46
HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS
| (In thousands, except share amounts) | December 31 2018 | December 31 2017 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 64,260 | $ | 62,098 | ||||
| Restricted cash | 2,886 | 4,111 | ||||||
| Trade accounts receivable, net | 291,213 | 288,034 | ||||||
| Other receivables | 54,182 | 20,224 | ||||||
| Inventories | 133,111 | 178,293 | ||||||
| Current portion of contract assets | 24,254 | — | ||||||
| Other current assets | 35,128 | 39,332 | ||||||
| Total current assets | 605,034 | 592,092 | ||||||
| Property, plant and equipment, net | 469,900 | 479,747 | ||||||
| Goodwill | 411,552 | 401,758 | ||||||
| Intangible assets, net | 79,825 | 38,251 | ||||||
| Deferred income tax assets | 49,114 | 51,574 | ||||||
| Other assets | 17,442 | 15,263 | ||||||
| Total assets | $ | 1,632,867 | $ | 1,578,685 | ||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Short-term borrowings | $ | 10,078 | $ | 8,621 | ||||
| Current maturities of long-term debt | 6,489 | 11,208 | ||||||
| Accounts payable | 149,410 | 126,249 | ||||||
| Accrued compensation | 57,586 | 60,451 | ||||||
| Income taxes payable | 2,634 | 5,106 | ||||||
| Insurance liabilities | 40,774 | 11,167 | ||||||
| Current portion of advances on contracts | 31,317 | 117,958 | ||||||
| Other current liabilities | 118,708 | 133,368 | ||||||
| Total current liabilities | 416,996 | 474,128 | ||||||
| Long-term debt | 585,662 | 566,794 | ||||||
| Insurance liabilities | 19,575 | 22,385 | ||||||
| Retirement plan liabilities | 213,578 | 259,367 | ||||||
| Advances on contracts | 37,675 | — | ||||||
| Other liabilities | 46,005 | 40,846 | ||||||
| Total liabilities | 1,319,491 | 1,363,520 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| HARSCO CORPORATION STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, Series A junior participating cumulative preferred stock | — | — | ||||||
| Common stock, par value $1.25 (issued 113,473,951 and 112,888,126 shares at December 31, 2018 and 2017, respectively) | 141,842 | 141,110 | ||||||
| Additional paid-in capital | 190,597 | 180,201 | ||||||
| Accumulated other comprehensive loss | (567,107 | ) | (546,582 | ) | ||||
| Retained earnings | 1,298,752 | 1,157,801 | ||||||
| Treasury stock, at cost (33,928,928 and 32,434,274 shares at December 31, 2018 and 2017, respectively) | (795,821 | ) | (762,079 | ) | ||||
| Total Harsco Corporation stockholders' equity | 268,263 | 170,451 | ||||||
| Noncontrolling interests | 45,113 | 44,714 | ||||||
| Total equity | 313,376 | 215,165 | ||||||
| Total liabilities and equity | $ | 1,632,867 | $ | 1,578,685 | ||||
| (In thousands, except share amounts) | December 31 2021 | December 31 2020 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 82,908 | $ | 76,454 | ||||||||||
| Restricted cash | 4,220 | 3,215 | ||||||||||||
| Trade accounts receivable, net | 377,881 | 355,313 | ||||||||||||
| Other receivables | 33,059 | 31,208 | ||||||||||||
| Inventories | 70,493 | 61,001 | ||||||||||||
| Prepaid expenses | 31,065 | 30,645 | ||||||||||||
| Current portion of assets held-for-sale | 265,413 | 247,477 | ||||||||||||
| Other current assets | 9,934 | 10,510 | ||||||||||||
| Total current assets | 874,973 | 815,823 | ||||||||||||
| Property, plant and equipment, net | 653,913 | 630,354 | ||||||||||||
| Right-of-use assets, net | 101,576 | 92,495 | ||||||||||||
| Goodwill | 883,109 | 889,048 | ||||||||||||
| Intangible assets, net | 402,801 | 435,116 | ||||||||||||
| Deferred income tax assets | 17,883 | 10,368 | ||||||||||||
| Assets held-for-sale | 71,234 | 69,906 | ||||||||||||
| Other assets | 48,419 | 50,177 | ||||||||||||
| Total assets | $ | 3,053,908 | $ | 2,993,287 | ||||||||||
| LIABILITIES | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Short-term borrowings | $ | 7,748 | $ | 7,450 | ||||||||||
| Current maturities of long-term debt | 10,226 | 13,576 | ||||||||||||
| Accounts payable | 186,126 | 164,102 | ||||||||||||
| Accrued compensation | 48,165 | 44,382 | ||||||||||||
| Income taxes payable | 6,378 | 3,403 | ||||||||||||
| Current portion of operating lease liabilities | 25,590 | 23,117 | ||||||||||||
| Current portion of liabilities of assets held-for-sale | 161,999 | 127,927 | ||||||||||||
| Other current liabilities | 155,159 | 153,998 | ||||||||||||
| Total current liabilities | 601,391 | 537,955 | ||||||||||||
| Long-term debt | 1,359,446 | 1,271,189 | ||||||||||||
| Retirement plan liabilities | 93,693 | 231,335 | ||||||||||||
| Operating lease liabilities | 74,571 | 67,126 | ||||||||||||
| Liabilities of assets held-for-sale | 8,492 | 52,851 | ||||||||||||
| Environmental liabilities | 28,435 | 29,424 | ||||||||||||
| Deferred tax liabilities | 33,826 | 36,192 | ||||||||||||
| Other liabilities | 48,284 | 53,816 | ||||||||||||
| Total liabilities | 2,248,138 | 2,279,888 | ||||||||||||
| COMMITMENTS AND CONTINGENCIES | 0 | 0 | ||||||||||||
| HARSCO CORPORATION STOCKHOLDERS' EQUITY | ||||||||||||||
| Common stock, par value $1.25 (issued 115,906,393 and 115,430,042 shares at December 31, 2021 and 2020, respectively) | 144,883 | 144,288 | ||||||||||||
| Additional paid-in capital | 215,528 | 204,078 | ||||||||||||
| Accumulated other comprehensive loss | (560,139) | (645,741) | ||||||||||||
| Retained earnings | 1,794,510 | 1,797,759 | ||||||||||||
| Treasury stock, at cost (36,690,847 and 36,505,672 shares at December 31, 2021 and 2020, respectively) | (846,622) | (843,230) | ||||||||||||
| Total Harsco Corporation stockholders' equity | 748,160 | 657,154 | ||||||||||||
| Noncontrolling interests | 57,610 | 56,245 | ||||||||||||
| Total equity | 805,770 | 713,399 | ||||||||||||
| Total liabilities and equity | $ | 3,053,908 | $ | 2,993,287 | ||||||||||
See accompanying notes to consolidated financial statements.
47
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years ended December 31 | ||||||||||||||||||||||||||
| (In thousands, except per share amounts) | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Revenues from continuing operations: | ||||||||||||||||||||||||||
| Service revenues | $ | 1,700,896 | $ | 1,400,648 | $ | 1,058,373 | ||||||||||||||||||||
| Product revenues | 147,503 | 133,385 | 145,996 | |||||||||||||||||||||||
| Total revenues | 1,848,399 | 1,534,033 | 1,204,369 | |||||||||||||||||||||||
| Costs and expenses from continuing operations: | ||||||||||||||||||||||||||
| Cost of services sold | 1,369,073 | 1,140,303 | 822,043 | |||||||||||||||||||||||
| Cost of products sold | 121,483 | 101,988 | 108,054 | |||||||||||||||||||||||
| Selling, general and administrative expenses | 272,233 | 284,442 | 205,177 | |||||||||||||||||||||||
| Research and development expenses | 956 | 534 | 886 | |||||||||||||||||||||||
| Other (income) expenses, net | (3,722) | 10,072 | (8,194) | |||||||||||||||||||||||
| Total costs and expenses | 1,760,023 | 1,537,339 | 1,127,966 | |||||||||||||||||||||||
| Operating income (loss) from continuing operations | 88,376 | (3,306) | 76,403 | |||||||||||||||||||||||
| Interest income | 2,231 | 2,129 | 1,946 | |||||||||||||||||||||||
| Interest expense | (63,235) | (58,196) | (34,024) | |||||||||||||||||||||||
| Unused debt commitment fees, amendment fees and loss on extinguishment of debt | (5,506) | (1,920) | (7,704) | |||||||||||||||||||||||
| Defined benefit pension income (expense) | 15,640 | 7,073 | (5,556) | |||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes and equity income | 37,506 | (54,220) | 31,065 | |||||||||||||||||||||||
| Income tax benefit (expense) from continuing operations | (9,089) | 8,673 | (12,728) | |||||||||||||||||||||||
| Equity in income (loss) of unconsolidated entities, net | (302) | 186 | 273 | |||||||||||||||||||||||
| Income (loss) from continuing operations | 28,115 | (45,361) | 18,610 | |||||||||||||||||||||||
| Discontinued operations: | ||||||||||||||||||||||||||
| Gain on sale of discontinued businesses | — | 18,281 | 569,135 | |||||||||||||||||||||||
| Income (loss) from discontinued businesses | (25,863) | 20,350 | 52,937 | |||||||||||||||||||||||
| Income tax benefit (expense) from discontinued businesses | 477 | (15,245) | (128,464) | |||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | (25,386) | 23,386 | 493,608 | |||||||||||||||||||||||
| Net income (loss) | 2,729 | (21,975) | 512,218 | |||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | (5,978) | (4,366) | (8,299) | |||||||||||||||||||||||
| Net income (loss) attributable to Harsco Corporation | $ | (3,249) | $ | (26,341) | $ | 503,919 | ||||||||||||||||||||
| Amounts attributable to Harsco Corporation common stockholders: | ||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | 22,137 | $ | (49,727) | $ | 10,311 | ||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | (25,386) | 23,386 | 493,608 | |||||||||||||||||||||||
| Net income (loss) attributable to Harsco Corporation common stockholders | $ | (3,249) | $ | (26,341) | $ | 503,919 | ||||||||||||||||||||
| Weighted average shares of common stock outstanding | 79,234 | 78,939 | 79,632 | |||||||||||||||||||||||
| Basic earnings (loss) per share attributable to Harsco Corporation common stockholders: | ||||||||||||||||||||||||||
| Continuing operations | $ | 0.28 | $ | (0.63) | $ | 0.13 | ||||||||||||||||||||
| Discontinued operations | (0.32) | 0.30 | 6.20 | |||||||||||||||||||||||
| Basic earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | (0.04) | $ | (0.33) | $ | 6.33 | ||||||||||||||||||||
| Diluted weighted average shares of common stock outstanding | 80,289 | 78,939 | 81,375 | |||||||||||||||||||||||
| Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders: | ||||||||||||||||||||||||||
| Continuing operations | $ | 0.28 | $ | (0.63) | $ | 0.13 | ||||||||||||||||||||
| Discontinued operations | (0.32) | 0.30 | 6.07 | |||||||||||||||||||||||
| Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | (0.04) | $ | (0.33) | $ | 6.19 | (a) | |||||||||||||||||||
| Years ended December 31 | |||||||||||||
| (In thousands, except per share amounts) | 2018 | 2017 | 2016 | ||||||||||
| Revenues from continuing operations: | |||||||||||||
| Service revenues | $ | 1,007,239 | $ | 981,672 | $ | 939,129 | |||||||
| Product revenues | 715,141 | 625,390 | 512,094 | ||||||||||
| Total revenues | 1,722,380 | 1,607,062 | 1,451,223 | ||||||||||
| Costs and expenses from continuing operations: | |||||||||||||
| Cost of services sold | 780,930 | 770,268 | 762,431 | ||||||||||
| Cost of products sold | 507,807 | 452,740 | 410,138 | ||||||||||
| Selling, general and administrative expenses | 238,690 | 229,792 | 196,871 | ||||||||||
| Research and development expenses | 5,548 | 4,227 | 4,280 | ||||||||||
| Other (income) expenses, net | (1,522 | ) | 4,641 | 12,620 | |||||||||
| Total costs and expenses | 1,531,453 | 1,461,668 | 1,386,340 | ||||||||||
| Operating income from continuing operations | 190,927 | 145,394 | 64,883 | ||||||||||
| Interest income | 2,155 | 2,469 | 2,475 | ||||||||||
| Interest expense | (38,148 | ) | (47,552 | ) | (51,584 | ) | |||||||
| Defined benefit pension income (expense) | 3,447 | (2,595 | ) | (1,414 | ) | ||||||||
| Loss on early extinguishment of debt | (1,127 | ) | (2,265 | ) | (35,337 | ) | |||||||
| Change in fair value to the unit adjustment liability and loss on dilution and sale of equity method investment | — | — | (58,494 | ) | |||||||||
| Income (loss) from continuing operations before income taxes and equity income | 157,254 | 95,451 | (79,471 | ) | |||||||||
| Income tax expense | (12,899 | ) | (83,803 | ) | (6,637 | ) | |||||||
| Equity in income of unconsolidated entities, net | 384 | — | 5,686 | ||||||||||
| Income (loss) from continuing operations | 144,739 | 11,648 | (80,422 | ) | |||||||||
| Discontinued operations: | |||||||||||||
| Income on disposal of discontinued business | 358 | 306 | 1,061 | ||||||||||
| Income tax expense related to discontinued business | (84 | ) | (110 | ) | (392 | ) | |||||||
| Income from discontinued operations | 274 | 196 | 669 | ||||||||||
| Net income (loss) | 145,013 | 11,844 | (79,753 | ) | |||||||||
| Less: Net income attributable to noncontrolling interests | (7,956 | ) | (4,022 | ) | (5,914 | ) | |||||||
| Net income (loss) attributable to Harsco Corporation | $ | 137,057 | $ | 7,822 | $ | (85,667 | ) | ||||||
| Amounts attributable to Harsco Corporation common stockholders: | |||||||||||||
| Income (loss) from continuing operations, net of tax | $ | 136,783 | $ | 7,626 | $ | (86,336 | ) | ||||||
| Income from discontinued operations, net of tax | 274 | 196 | 669 | ||||||||||
| Net income (loss) attributable to Harsco Corporation common stockholders | $ | 137,057 | $ | 7,822 | $ | (85,667 | ) | ||||||
| Weighted average shares of common stock outstanding | 80,716 | 80,553 | 80,333 | ||||||||||
| Basic earnings (loss) per share attributable to Harsco Corporation common stockholders: | |||||||||||||
| Continuing operations | $ | 1.69 | $ | 0.09 | $ | (1.07 | ) | ||||||
| Discontinued operations | — | — | 0.01 | ||||||||||
| Basic earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | 1.70 | (a) | $ | 0.10 | (a) | $ | (1.07 | ) | (a) | |||
| Diluted weighted average shares of common stock outstanding | 83,595 | 82,840 | 80,333 | ||||||||||
| Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders: | |||||||||||||
| Continuing operations | $ | 1.64 | $ | 0.09 | $ | (1.07 | ) | ||||||
| Discontinued operations | — | — | 0.01 | ||||||||||
| Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | 1.64 | $ | 0.09 | $ | (1.07 | ) | (a) | |||||
See accompanying notes to consolidated financial statements.
48
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Years ended December 31 | Years ended December 31 | |||||||||||||||||||||||||||||||
| (In thousands) | 2018 | 2017 | 2016 | (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||||||||||
| Net income (loss) | $ | 145,013 | $ | 11,844 | $ | (79,753 | ) | Net income (loss) | $ | 2,729 | $ | (21,975) | $ | 512,218 | ||||||||||||||||||
| Other comprehensive income (loss): | Other comprehensive income (loss): | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net of deferred income taxes of $(2,167), $3,471 and $(13,670) in 2018, 2017 and 2016, respectively | (50,743 | ) | 36,011 | (21,560 | ) | |||||||||||||||||||||||||||
| Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $(1,130), $(759) and $(544) in 2018, 2017 and 2016, respectively | 2,101 | 1,897 | (682 | ) | ||||||||||||||||||||||||||||
| Pension liability adjustments, net of deferred income taxes of $854, $(4,084) and $34 in 2018, 2017 and 2016, respectively | 27,185 | 25,254 | (71,398 | ) | ||||||||||||||||||||||||||||
| Unrealized gain (loss) on marketable securities, net of deferred income taxes of $16, $(12) and $(16) in 2018, 2017 and 2016, respectively | (48 | ) | 22 | 26 | ||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net of deferred income taxes of $(23), $1,284 and $2,507 in 2021, 2020 and 2019, respectively | Foreign currency translation adjustments, net of deferred income taxes of $(23), $1,284 and $2,507 in 2021, 2020 and 2019, respectively | (10,994) | 20,760 | 15,498 | ||||||||||||||||||||||||||||
| Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $(797), $79 and $1,438 in 2021, 2020 and 2019, respectively | Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $(797), $79 and $1,438 in 2021, 2020 and 2019, respectively | 2,816 | (2,123) | (5,106) | ||||||||||||||||||||||||||||
| Pension liability adjustments, net of deferred income taxes of $(5,409), $384 and $(3,244) in 2021, 2020 and 2019, respectively | Pension liability adjustments, net of deferred income taxes of $(5,409), $384 and $(3,244) in 2021, 2020 and 2019, respectively | 92,252 | (73,938) | (10,478) | ||||||||||||||||||||||||||||
| Unrealized gain (loss) on marketable securities, net of deferred income taxes of $(12), $2 and $(11) in 2021, 2020 and 2019, respectively | Unrealized gain (loss) on marketable securities, net of deferred income taxes of $(12), $2 and $(11) in 2021, 2020 and 2019, respectively | 31 | (6) | 28 | ||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | (21,505 | ) | 63,184 | (93,614 | ) | Total other comprehensive income (loss) | 84,105 | (55,307) | (58) | |||||||||||||||||||||||
| Total comprehensive income (loss) | 123,508 | 75,028 | (173,367 | ) | Total comprehensive income (loss) | 86,834 | (77,282) | 512,160 | ||||||||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | (5,454 | ) | (7,068 | ) | (3,334 | ) | Less: Comprehensive income attributable to noncontrolling interests | (4,480) | (7,178) | (7,327) | ||||||||||||||||||||||
| Comprehensive income (loss) attributable to Harsco Corporation | $ | 118,054 | $ | 67,960 | $ | (176,701 | ) | Comprehensive income (loss) attributable to Harsco Corporation | $ | 82,354 | $ | (84,460) | $ | 504,833 | ||||||||||||||||||
See accompanying notes to consolidated financial statements.
49
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years ended December 31 | ||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net income (loss) | $ | 2,729 | $ | (21,975) | $ | 512,218 | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||||||||||||||
| Depreciation | 131,449 | 125,765 | 119,803 | |||||||||||||||||
| Amortization | 35,224 | 33,937 | 18,592 | |||||||||||||||||
| Loss on early extinguishment of debt | 2,668 | — | 5,314 | |||||||||||||||||
| Deferred income tax expense (benefit) | (16,930) | 1,115 | 6,815 | |||||||||||||||||
| Equity (income) loss of unconsolidated entities, net | 302 | (186) | (273) | |||||||||||||||||
| Dividends from unconsolidated entities | 269 | 216 | 125 | |||||||||||||||||
| Gain on sale from discontinued businesses | — | (18,281) | (569,135) | |||||||||||||||||
| Other, net | 2,062 | 310 | 1,764 | |||||||||||||||||
| Changes in assets and liabilities, net of acquisitions and dispositions of businesses: | ||||||||||||||||||||
| Accounts receivable | (19,781) | 34,221 | (3,464) | |||||||||||||||||
| Income tax refunds receivable from acquisition, reimbursable to seller | 2,870 | (11,032) | — | |||||||||||||||||
| Insurance receivable | — | — | 195,000 | |||||||||||||||||
| Inventories | (7,783) | (12,281) | (42,484) | |||||||||||||||||
| Contract assets | (43,510) | (28,376) | (21,795) | |||||||||||||||||
| Right-of-use-assets | 28,300 | 25,400 | 15,164 | |||||||||||||||||
| Accounts payable | 14,118 | (14,452) | 13,407 | |||||||||||||||||
| Accrued interest payable | (411) | (2,422) | 14,723 | |||||||||||||||||
| Accrued compensation | 6,469 | 2,921 | (15,759) | |||||||||||||||||
| Advances on contracts and other customer advances | (14,311) | 10,492 | (4,172) | |||||||||||||||||
| Operating lease liabilities | (27,307) | (24,785) | (14,740) | |||||||||||||||||
| Insurance liability | — | — | (195,000) | |||||||||||||||||
| Income taxes payable - gain on sale of discontinued businesses | — | (12,373) | 12,373 | |||||||||||||||||
| Retirement plan liabilities, net | (45,786) | (33,257) | (24,022) | |||||||||||||||||
| Other assets and liabilities | 21,556 | (1,139) | (24,617) | |||||||||||||||||
| Net cash provided (used) by operating activities | 72,197 | 53,818 | (163) | |||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Purchases of property, plant and equipment | (158,326) | (120,224) | (184,973) | |||||||||||||||||
| Proceeds from sale of businesses | — | 37,219 | 658,414 | |||||||||||||||||
| Purchase of businesses, net of cash acquired* | — | (432,855) | (623,495) | |||||||||||||||||
| Proceeds from sales of assets | 16,724 | 6,204 | 17,022 | |||||||||||||||||
| Expenditures for intangible assets | (358) | (317) | (1,311) | |||||||||||||||||
| Proceeds from notes receivable | 6,400 | — | 0 | |||||||||||||||||
| Purchase of equity method investment | — | — | (2,364) | |||||||||||||||||
| Payments for interest rate swap terminations | — | — | (2,758) | |||||||||||||||||
| Net proceeds (payments) from settlement of foreign currency forward exchange contracts | 10,940 | (10,519) | 7,273 | |||||||||||||||||
| Other investing activities, net | 171 | (152) | — | |||||||||||||||||
| Net cash used by investing activities | (124,449) | (520,644) | (132,192) | |||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Short-term borrowings, net | 935 | 1,612 | (5,398) | |||||||||||||||||
| Current maturities and long-term debt: | ||||||||||||||||||||
| Additions | 540,663 | 638,717 | 848,314 | |||||||||||||||||
| Reductions | (464,848) | (139,887) | (661,620) | |||||||||||||||||
| Dividends paid to noncontrolling interests | (3,103) | (2,978) | (4,712) | |||||||||||||||||
| Sale (purchase) of noncontrolling interests | — | (561) | 4,026 | |||||||||||||||||
| Stock-based compensation - Employee taxes paid | (3,392) | (4,303) | (11,234) | |||||||||||||||||
| Common stock acquired for treasury | — | — | (31,838) | |||||||||||||||||
| Payment of contingent consideration | (1,588) | (2,342) | — | |||||||||||||||||
| Deferred financing costs | (7,828) | (1,928) | (11,272) | |||||||||||||||||
| Other financing activities, net | (601) | (1,372) | (532) | |||||||||||||||||
| Net cash provided by financing activities | 60,238 | 486,958 | 125,734 | |||||||||||||||||
50
HARSCO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
| Years ended December 31 | ||||||||||||
| (In thousands) | 2018 | 2017 | 2016 | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | 145,013 | $ | 11,844 | $ | (79,753 | ) | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Depreciation | 122,135 | 121,839 | 129,083 | |||||||||
| Amortization | 10,650 | 8,098 | 12,403 | |||||||||
| Change in fair value to the unit adjustment liability and loss on dilution and sale of equity method investment | — | — | 58,494 | |||||||||
| Contract estimated forward loss provision for Harsco Rail Segment | — | — | 45,050 | |||||||||
| Loss on early extinguishment of debt | — | — | 35,337 | |||||||||
| Deferred income tax expense (benefit) | (6,522 | ) | 57,349 | (7,654 | ) | |||||||
| Equity income of unconsolidated entities, net | (384 | ) | — | (5,686 | ) | |||||||
| Dividends from unconsolidated entities | 88 | 93 | 16 | |||||||||
| Other, net | 2,666 | 749 | 2,633 | |||||||||
| Changes in assets and liabilities, net of acquisitions and dispositions of businesses: | ||||||||||||
| Accounts receivable | (16,881 | ) | (32,012 | ) | 16,041 | |||||||
| Inventories | (14,706 | ) | 19,557 | (12,313 | ) | |||||||
| Contract assets | (3,312 | ) | — | — | ||||||||
| Accounts payable | 18,347 | 12,554 | (20,194 | ) | ||||||||
| Accrued interest payable | (154 | ) | 438 | (3,197 | ) | |||||||
| Accrued compensation | (1,127 | ) | 11,126 | 8,865 | ||||||||
| Advances on contracts and other customer advances | 3,057 | (16,811 | ) | 14,485 | ||||||||
| Retirement plan liabilities, net | (33,321 | ) | (21,300 | ) | (20,420 | ) | ||||||
| Other assets and liabilities | (33,527 | ) | 3,368 | (13,314 | ) | |||||||
| Net cash provided by operating activities | 192,022 | 176,892 | 159,876 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of property, plant and equipment | (132,168 | ) | (98,314 | ) | (69,340 | ) | ||||||
| Purchase of businesses, net of cash acquired* | (56,389 | ) | — | (26 | ) | |||||||
| Proceeds from sales of assets | 11,887 | 13,418 | 9,305 | |||||||||
| Proceeds from sale of equity investment | — | — | 165,640 | |||||||||
| Net proceeds (payments) from settlement of foreign currency forward exchange contracts | 15,527 | (18,429 | ) | 17,238 | ||||||||
| Other investing activities, net | — | — | 70 | |||||||||
| Net cash provided (used) by investing activities | (161,143 | ) | (103,325 | ) | 122,887 | |||||||
| Cash flows from financing activities: | ||||||||||||
| Short-term borrowings, net | 1,932 | 5,061 | (2,350 | ) | ||||||||
| Current maturities and long-term debt: | ||||||||||||
| Additions | 128,858 | 27,985 | 720,727 | |||||||||
| Reductions | (116,988 | ) | (108,280 | ) | (979,567 | ) | ||||||
| Cash dividends paid on common stock | — | — | (4,105 | ) | ||||||||
| Dividends paid to noncontrolling interests | (5,480 | ) | (2,445 | ) | (1,702 | ) | ||||||
| Sale (purchase) of noncontrolling interests | 477 | (3,412 | ) | (4,731 | ) | |||||||
| Stock-based compensation - Employee taxes paid | (3,730 | ) | (1,688 | ) | (91 | ) | ||||||
| Common stock acquired for treasury | (30,011 | ) | — | — | ||||||||
| Proceeds from cross-currency interest rate swap termination | — | — | 16,625 | |||||||||
| Deferred pension underfunding payment to unconsolidated affiliate | — | — | (20,640 | ) | ||||||||
| Deferred financing costs | (596 | ) | (42 | ) | (16,530 | ) | ||||||
| Other investing activities, net | — | (894 | ) | — | ||||||||
| Net cash used by financing activities | (25,538 | ) | (83,715 | ) | (292,364 | ) | ||||||
| Effect of exchange rate changes on cash, including restricted cash | (4,404 | ) | 4,478 | 1,724 | ||||||||
| Net increase (decrease) in cash and cash equivalents, including restricted cash | 937 | (5,670 | ) | (7,877 | ) | |||||||
| Cash and cash equivalents, including restricted cash, at beginning of period | 66,209 | 71,879 | 79,756 | |||||||||
| Cash and cash equivalents, including restricted cash, at end of period | $ | 67,146 | $ | 66,209 | $ | 71,879 | ||||||
HARSCO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) | ||||||||||||
| Years ended December 31 | ||||||||||||
| (In thousands) | 2018 | 2017 | 2016 | |||||||||
| *Purchase of businesses, net of cash acquired | ||||||||||||
| Working capital | $ | 1,295 | $ | — | $ | — | ||||||
| Property, plant and equipment | (3,327 | ) | — | — | ||||||||
| Goodwill | (22,518 | ) | — | — | ||||||||
Long-term debt acquired | 335 | — | — | |||||||||
| Other noncurrent assets and liabilities, net | (32,174 | ) | — | (26 | ) | |||||||
| Net cash used to acquire businesses | $ | (56,389 | ) | $ | — | $ | (26 | ) | ||||
| Years ended December 31 | ||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Effect of exchange rate changes on cash, including restricted cash | (527) | (195) | (793) | |||||||||||||||||
| Net increase (decrease) in cash and cash equivalents, including restricted cash | 7,459 | 19,937 | (7,414) | |||||||||||||||||
| Cash and cash equivalents, including restricted cash, at beginning of period | 79,669 | 59,732 | 67,146 | |||||||||||||||||
| Cash and cash equivalents, including restricted cash, at end of period | $ | 87,128 | $ | 79,669 | $ | 59,732 | ||||||||||||||
| Supplementary cash flow information: | ||||||||||||||||||||
| Change in accrual for purchases of property, plant and equipment included in accounts payable | $ | 4,253 | $ | 3,559 | $ | 5,164 | ||||||||||||||
| *Purchase of businesses, net of cash acquired | ||||||||||||||||||||
| Working capital | $ | 532 | $ | (33,387) | $ | (26,663) | ||||||||||||||
| Property, plant and equipment | 823 | (102,258) | (77,295) | |||||||||||||||||
| Goodwill | (1,232) | (153,562) | (330,230) | |||||||||||||||||
| Long-term debt acquired | — | — | 605 | |||||||||||||||||
| Other noncurrent assets and liabilities, net | (123) | (143,648) | (189,912) | |||||||||||||||||
| Net cash used to acquire businesses | $ | — | $ | (432,855) | $ | (623,495) | ||||||||||||||
See accompanying notes to consolidated financial statements.
51
HARSCO CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||||||||||||||||||
| (In thousands, except share and per share amounts) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | |||||||||||||||||||||||
| Issued | Treasury | Total | ||||||||||||||||||||||||||
| Balances, January 1, 2016 | $ | 140,503 | $ | (760,299 | ) | $ | 170,699 | $ | 1,236,355 | $ | (515,688 | ) | $ | 39,233 | $ | 310,803 | ||||||||||||
| Net income (loss) | (85,667 | ) | 5,914 | (79,753 | ) | |||||||||||||||||||||||
| Cash dividends declared: | ||||||||||||||||||||||||||||
| Noncontrolling interests | (1,702 | ) | (1,702 | ) | ||||||||||||||||||||||||
| Total other comprehensive loss, net of deferred income taxes of $(14,196) | (91,034 | ) | (2,580 | ) | (93,614 | ) | ||||||||||||||||||||||
| Purchase of subsidiary shares from noncontrolling interest | (5,128 | ) | 397 | (4,731 | ) | |||||||||||||||||||||||
| Vesting of restricted stock units and other stock grants, net 80,598 shares | 122 | (92 | ) | (1,194 | ) | (1,164 | ) | |||||||||||||||||||||
| Amortization of unearned stock-based, compensation, net of forfeitures | 7,724 | 7,724 | ||||||||||||||||||||||||||
| Balances, December 31, 2016 | 140,625 | (760,391 | ) | 172,101 | 1,150,688 | (606,722 | ) | 41,262 | 137,563 | |||||||||||||||||||
| Adoption of new accounting standard (See Note 2) | 1,106 | (709 | ) | 397 | ||||||||||||||||||||||||
| Net income | 7,822 | 4,022 | 11,844 | |||||||||||||||||||||||||
| Cash dividends declared: | ||||||||||||||||||||||||||||
| Noncontrolling interests | (2,445 | ) | (2,445 | ) | ||||||||||||||||||||||||
| Total other comprehensive income, net of deferred income taxes of $(1,384) | 60,140 | 3,044 | 63,184 | |||||||||||||||||||||||||
| Purchase of subsidiary shares from noncontrolling interest | (2,242 | ) | (1,194 | ) | (3,436 | ) | ||||||||||||||||||||||
| Sale of investment in consolidated subsidiary | 25 | 25 | ||||||||||||||||||||||||||
| Stock appreciation rights exercise, net 8,965 shares | 16 | (63 | ) | (16 | ) | (63 | ) | |||||||||||||||||||||
| Vesting of restricted stock units and other stock grants, net 269,924 shares | 469 | (1,625 | ) | (469 | ) | (1,625 | ) | |||||||||||||||||||||
| Amortization of unearned stock-based compensation, net of forfeitures | 9,721 | 9,721 | ||||||||||||||||||||||||||
| Balances, December 31, 2017 | 141,110 | (762,079 | ) | 180,201 | 1,157,801 | (546,582 | ) | 44,714 | 215,165 | |||||||||||||||||||
| Adoption of new accounting standard (See Note 2) | 3,894 | (1,520 | ) | 2,374 | ||||||||||||||||||||||||
| Net income | 137,057 | 7,956 | 145,013 | |||||||||||||||||||||||||
| Cash dividends declared: | ||||||||||||||||||||||||||||
| Noncontrolling interests | (5,534 | ) | (5,534 | ) | ||||||||||||||||||||||||
| Total other comprehensive loss, net of deferred income taxes of $(2,427) | (19,005 | ) | (2,500 | ) | (21,505 | ) | ||||||||||||||||||||||
| Purchase of subsidiary shares from noncontrolling interest | 477 | 477 | ||||||||||||||||||||||||||
| Stock appreciation rights exercised, net 28,109 shares | 50 | (282 | ) | (50 | ) | (282 | ) | |||||||||||||||||||||
| Vesting of restricted stock units and other stock grants, net 384,134 shares | 682 | (3,449 | ) | (682 | ) | (3,449 | ) | |||||||||||||||||||||
| Treasury shares repurchased, 1,321,072 shares | (30,011 | ) | (30,011 | ) | ||||||||||||||||||||||||
| Amortization of unearned stock-based compensation, net of forfeitures | 11,128 | 11,128 | ||||||||||||||||||||||||||
| Balances, December 31, 2018 | $ | 141,842 | $ | (795,821 | ) | $ | 190,597 | $ | 1,298,752 | $ | (567,107 | ) | $ | 45,113 | $ | 313,376 | ||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| (In thousands, except share and per share amounts) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||
| Issued | Treasury | Total | ||||||||||||||||||||||||||||||||||||||||||
| Balances, January 1, 2019 | $ | 141,842 | $ | (795,821) | $ | 190,597 | $ | 1,298,752 | $ | (567,107) | $ | 45,113 | $ | 313,376 | ||||||||||||||||||||||||||||||
| Adoption of new accounting standard | 21,429 | (21,429) | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | 503,919 | 8,299 | 512,218 | |||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared: | ||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests | (4,693) | (4,693) | ||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net of deferred income taxes of $690 | 914 | (972) | (58) | |||||||||||||||||||||||||||||||||||||||||
| Sale of investment in consolidated subsidiary | 4,026 | 4,026 | ||||||||||||||||||||||||||||||||||||||||||
| Strategic Venture Exit | (3,694) | (3,694) | ||||||||||||||||||||||||||||||||||||||||||
| Stock appreciation rights exercised, net 11,246 shares | 20 | (117) | (20) | (117) | ||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and other stock grants, net 196,102 shares | 402 | (2,882) | (402) | (2,882) | ||||||||||||||||||||||||||||||||||||||||
| Vesting of performance share units, net 529,213 shares | 1,136 | (8,235) | (1,149) | (8,248) | ||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased, 1,766,826 shares | (31,838) | (31,838) | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of unearned stock-based compensation, net of forfeitures | 11,569 | 11,569 | ||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | 143,400 | (838,893) | 200,595 | 1,824,100 | (587,622) | 48,079 | 789,659 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | (26,341) | 4,366 | (21,975) | |||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared: | ||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests | (2,978) | (2,978) | ||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net of deferred income taxes of $1,749 | (58,119) | 2,812 | (55,307) | |||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest | (4,527) | 3,966 | (561) | |||||||||||||||||||||||||||||||||||||||||
| Stock appreciation rights exercised, net 6,236 shares | 11 | (24) | (11) | (24) | ||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and other stock grants, net 138,225 shares | 288 | (1,108) | (288) | (1,108) | ||||||||||||||||||||||||||||||||||||||||
| Vesting of performance share units, net 265,151 shares | 589 | (3,205) | (589) | (3,205) | ||||||||||||||||||||||||||||||||||||||||
| Amortization of unearned stock-based compensation, net of forfeitures | 8,898 | 8,898 | ||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | 144,288 | (843,230) | 204,078 | 1,797,759 | (645,741) | 56,245 | 713,399 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | (3,249) | 5,978 | 2,729 | |||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared: | ||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests | (3,116) | (3,116) | ||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net of deferred income taxes of $(6,241) | 85,602 | (1,497) | 84,105 | |||||||||||||||||||||||||||||||||||||||||
| Stock appreciation rights exercised, net 28,789 shares | 58 | (376) | (58) | (376) | ||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and other stock grants, net 193,260 shares | 382 | (1,983) | (382) | (1,983) | ||||||||||||||||||||||||||||||||||||||||
| Vesting of performance share units, 69,127 net shares | 155 | (1,033) | (155) | (1,033) | ||||||||||||||||||||||||||||||||||||||||
| Amortization of unearned stock-based compensation, net of forfeitures | 12,045 | 12,045 | ||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | 144,883 | $ | (846,622) | $ | 215,528 | $ | 1,794,510 | $ | (560,139) | $ | 57,610 | $ | 805,770 | ||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
52
HARSCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include all accounts of Harsco Corporation (the "Company"), all entities in which the Company has a controlling voting interest and variable interest entities required to be consolidated in accordance with generally accepted accounting principles in the U.S. ("U.S. GAAP").GAAP. Intercompany accounts and transactions have been eliminated among consolidated entities. The Company's management has evaluated all activity of the Company and concluded that subsequent events are properly reflected in the Company's consolidated financial statements and notes as required by U.S. GAAP.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with current year classifications.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short-term investments that are highly liquid in nature and have an original maturity of three months or less.
Restricted Cash
The Company had restricted cash of $2.9$4.2 million and $4.1$3.2 million at December 31, 20182021 and December 31, 2017,2020, respectively, and the restrictions are primarily related to collateral provided for certain guarantees of the Company’s performance.
Accounts Receivable
Accounts receivable are stated at net realizable value which represents the face value of the receivable less an allowance for expected credit losses. The allowance for expected credit losses is maintained for expected lifetime losses resulting from the inability or unwillingness of customers to make required payments.
The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company generally assesses future economic conditions for a period which corresponds with the contractual life of its accounts receivable. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.
Inventories
Inventories in the U.S. are principally accounted for using the average cost, first-in, first-out ("FIFO"), or last-in, first-out ("LIFO") methodmethod. Inventory accounted for under the average cost and FIFO methods are stated at the lower of cost or net realizable value. The Company's remaining inventories areInventory accounted for usingunder the first-in, first-out ("FIFO") or average cost methods and areLIFO method is stated at the lower of cost or net realizable value.market. See Note 4, Accounts Receivable and5, Inventories, for additional information.
Depreciation
Property, plant and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using, principally, the straight-line method. When property, plant and equipment is retired from service, the cost of the retirement is charged to the allowance for depreciation to the extent of the accumulated depreciation and the balance is charged to income. Long-lived assets to be disposed of by sale are not depreciated while they are classified as held-for-sale.
Leases
The Company leases certain property and equipment under noncancelable lease agreements. The Company determines if a contract or arrangement contains a lease at inception. All lease agreementsleases are evaluated and classified as either an operating or capital lease in accordance with U.S. GAAP.finance lease. A lease is classified as a capitalfinance lease if any of the following criteria are met: transfer(i) ownership of ownershipthe underlying asset transfers to the Company by the end of the lease term; (ii) the lease contains a bargainan option to purchase option;the underlying asset that the Company is reasonably expected to exercise; (iii) the lease term is equal to or greater than 75%for a major part of the asset'sremaining economic life;life of the underlying asset; (iv) the present value of the sum of lease payments and any residual value guaranteed by the Company equals or exceeds substantially all of the fair value of the underlying asset; or (v) the underlying asset is of a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease that does not meet any of the criteria to be classified as a finance lease is classified as an operating lease.
53
Operating leases are included as Right-of-use assets, net, Current portion of operating lease liabilities, and Operating lease liabilities on the Consolidated Balance Sheets. ROU assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. As most of the Company’s leases do not provide an implicit rate for use in determining the present value of future payments, the Company uses an incremental borrowing rate. This incremental borrowing rate reflects the creditworthiness of the Company for a lending period commensurate to the term of the lease and the standard lending practices related to such loans in the respective jurisdiction where the underlying assets are located. ROU assets also include any lease payments made and exclude any lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is equal to or greater than 90% of the asset's fair market value. Operating lease expense is recognized ratablyon a straight-line basis over the lease term, including rent abatement periods and rent holidays. See Note 2, Recently AdoptedCertain of the Company's leases are subject to annual changes in an index or are subject to adjustments for which the amounts are not readily determinable at lease inception. While lease liabilities are not remeasured as a result of changes to these costs, changes are treated as variable lease payments and Recently Issued Accounting Standards; Note 6,recognized in the period in which the obligation for those payments was incurred.
Finance leases are included as Property, Plantplant and Equipment;equipment, net; Current maturities of long-term debt and Long-term debt on the Consolidated Balance Sheets. Finance lease costs are split between depreciation expense related to the asset and interest expense on the lease liability, using the effective rate charged by the lessor.
The Company has lease agreements with both lease and non-lease components, which the Company has elected to account for as a single lease component. Additionally, the Company has elected not to record short-term leases, those with expected terms of twelve months or less, on the Consolidated Balance Sheets. Certain lease agreements include fixed escalations, while others include rental payments adjusted periodically for inflation. See Note 8, Debt and Credit Agreements;Agreements, and Note 9, Operating Leases, for additional information on leases.
In accordance with U.S. GAAP, goodwill is not amortized and is tested for impairment at least annually or more frequently if indicators of impairment exist or if a decision is made to dispose of a business. Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment for which discrete financial information is available. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include declining cash flows or operating losses at the reporting unit level, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel or a more likely than not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, among others.
The evaluationquantitative approach of potentialtesting for goodwill impairment involves comparing the current fair value of each reporting unit to the net bookcarrying value, including goodwill. The Company uses a discounted cash flow model (“DCF model”) to estimate the current fair value of reporting units, as management believes forecasted operating cash flows are the best indicator of current fair value. A number of significant assumptions and estimates are involved in the preparation of DCF models including future revenues and operating margin growth, the weighted-average cost of capital (“WACC”), tax rates, capital spending, pension funding, the impact of business initiatives and working capital projections. These assumptions and estimates may vary significantly among reporting units. DCF models are based on approved long-range plans for the early years and historical relationships and projections for later years. WACC rates are derived from internal and external factors including, but not
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limited to, the average market price of the Company's stock, shares outstanding, book value of the Company's debt, the long-term risk-free interest rate, and both market and size-specific risk premiums. Due to the many variables noted above and the relative size of the Company's goodwill, differences in assumptions may have a material impact on the results of the Company's annual goodwill impairment testing. If the net book value of a reporting unit were to exceed the current fair value, the second stepCompany's determination of the goodwill impairment test would currently be required to determine if an impairment existed and the amount of goodwill impairment to record, if any. The second step of the goodwill impairment test compares the net book value of a reporting unit's goodwill with the implied fair value of that goodwill. The implied fair value of goodwill represents the excess of fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of the reporting unit if it were to be acquired in a hypothetical business combination and the current fair value, ofthen an impairment charge would be recognized as the reporting unit representeddifference between the purchase price. As necessary,fair value and the Company may use valuation experts to assist with the second step of the goodwill impairment test.carrying value. See Note 7, Goodwill and Other Intangible Assets, for additional information.
Long-Lived Assets Impairments (Other than Goodwill)
Long-lived assets (oror asset groups)groups are reviewed for impairment when events and circumstances indicate that the carrying amount of an asset (oror asset group)group may not be recoverable. Long-lived assets (oror asset groups)groups are reviewed for impairment when events and circumstances indicate the book value of an asset (oror asset group)group may be impaired. The Company's policy is to determine if an impairment loss exists when it is determined that the carrying amount of the asset (oror asset group)group exceeds the sum of the expected undiscounted future cash flows resulting from use of the asset (oror asset group)group and its eventual disposition. Impairment losses are measured as the amount by which the carrying amount of the asset (oror asset group)group exceeds its fair value, normally as determined in either open market transactions or through the use of a DCF model. Long-lived assets (oror asset groups)groups to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. See Note 18, Other (Income) Expenses, Net for additional information.
Deferred Financing Costs
The Company has incurred debt issuance costs which are recognized as a reduction of Long-term debt on the Consolidated Balance Sheets. Debt issuance costs are amortized and recognized as interest expense over the contractual term of the related indebtedness or shorter period if appropriate based upon contractual terms. Whenever indebtedness is modified from its original terms, an evaluation is made whether an accounting modification or extinguishment has occurred in order to determine the accounting treatment for debt issuance costs related to the debt modification.
Revenue Recognition
The Company recognizes revenues to depict the transfer of promised services and products to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services or products. Service revenues include the Harsco Clean Earth Segment and the service components of the Harsco Metals & Minerals and Harsco Rail Segments.Environmental Segment. Product revenues include the Harsco Industrial Segment and the product revenuesportions of the Harsco Metals & Minerals and Harsco Rail Segments.Environmental Segment.
Harsco Metals & MineralsEnvironmental - This Segment provides on-site services, under long-term contracts, for material logistics; product quality improvement and resource recovery from iron, steel and metals manufacturing; manufactures and sells industrial abrasives and roofing granule products; and manufactures aluminum dross and scrap processing systems.
•Service revenues are recognized over time as the customer simultaneously receives the benefits provided by the Company's performance. The Company utilizes an output method based on work performed (liquid steel tons processed, weight of material handled, etc.) to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company. Transaction prices are based on contractual terms, which may include both fixed and variable portions. The fixed portion is recognized as earned (normally monthly) over the contractual period. The variable portion is recognized as services are performed and differs based on the volume of
services performed. Given the long-term nature of these arrangements, most contracts permit periodic adjustment of either the variable or both the fixed and variable portions based on the changes in macroeconomic indicators, including changes in commodity prices. Transaction prices, when the standalone selling price is not directly observable, are allocated to performance obligations utilizing an expected cost plus a margin approach. Amounts are typically billed and payable on a monthly basis as services are performed.
•Product revenues in the applied products business are recognized at the point when control transfers to the customer. Control generally transfers at the point of shipment for domestic orders and in accordance with the international commercial terms included in contracts for export sales. Transaction prices are based on contractual terms, which are generally fixed and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Amounts are billed and payable upon completion of each transaction.
•Product revenues in the aluminum dross and scrap process systems business are generally recognized over time as control is transferred to the customer. Control transfers over time because aluminum dross and scrap systems are customized, have no alternate use and the Company has an enforceable right to payment. The Company utilizes an input method based on costs incurred ("cost-to-cost method") to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company. Transaction prices are based on contractual terms, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. The Company may receive periodic
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payments associated with key milestones with any remaining consideration billed and payable upon completion of the transaction.
Harsco IndustrialClean Earth - This Segment sells air-cooled heat exchangers, metal bar grating configurationsprovides specialty waste processing and energy-efficient heat transfer products.beneficial reuse solutions for hazardous wastes, and soil and dredged materials.
Harsco Rail - This Segmentbusiness sells railway track maintenance equipment, after-market parts, Protran/safety equipment and provides railway track maintenance services.
•For the majority ofstandard railway track maintenance equipment sales, revenue is recognized at the point when control transfers to the customer. Control generally transfers at the point of shipment for domestic orders and in accordance with the international commercial terms included in contracts for export sales. In certain railway track maintenance equipment sales, revenue is recognized over time because such equipment is highly customized, has no alternate use and the Company has an enforceable right to payment. In such instances,The former Harsco Rail Segment uses the Company utilizes a cost-to-cost method to measure progress whichbecause it is deemed tothe measure that best depictdepicts the transfer of valuecontrol to the customer, which occurs as the former Harsco Rail Segment incurs costs under the contracts. Under the cost-to-cost method, the extent of progress towards completion is based on the ratio of costs incurred to total estimated costs at completion which includes both actual costs already incurred and revenue earned by the Company.estimated costs to complete. Accounting for contracts with customers using the cost-to-cost method requires significant judgment relative to assessing risks, estimating contract revenues (including estimates of variable consideration, if applicable, as well as estimating any liquidating damages or penalties related to performance), estimating contract costs (including estimating engineering costs to design the machine and the material, labor and overhead manufacturing costs to build the machine); making assumptions for schedule and technical items; properly executing the engineering and design phases consistent with customer expectations; the availability and costs of labor and material resources; productivity; and evaluating whether a significant financing component is present. Due to the number of years it may take to complete certain contracts and the scope and nature of the work required to be performed on those contracts, estimating total revenues and costs at completion is inherently complicated and subject to many variables. Transaction prices are based on contracted terms, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing either the adjusted market assessment or expected cost plus a margin approach. For certain transactions, the Company receives periodic payments associated with key milestones. In limited instances, those payments are intended to provide financing with such transactions being treated as including a significant financing component. Any remaining consideration is billed and payable upon completion of the transaction. Railway track maintenance equipment revenue of approximately $102 million was recognized using the cost-to-cost method in 2021, the net profit or loss of which is included in Income (loss) from discontinued businesses in the Consolidated Statements of Operations.
•For after-market parts sales and Protran/safety equipment, revenue is recognized at the point when control transfers to the customer. Control generally transfertransfers to the customer at the point of shipment for domestic orders and in accordance with the international commercial terms included in contracts for export sales. Transaction prices are based on contracted terms, which are
generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Amounts are billed and payable upon completion of each contract.
•For railway track maintenance services, revenue is recognized over time as the customer simultaneously receives the benefits provided by the Company's performance. The Company utilizes an appropriate output method based on work performed (feet, miles, shifts worked, etc.) to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company. Transaction prices are based on contracted terms, which are generally variable. The variable portion is recognized as services are performed and differs based on the value of services. Given the long-term nature of these arrangements, most contracts permit periodic adjustment based on the changes in macroeconomic indicators. Transaction prices, when the standalone selling price is not directly observable, are allocated to performance obligations utilizing an expected cost plus a margin approach. Amounts are typically billed and payable on a monthly basis as services are performed.
56
The Company has elected to utilize the following practical expedients on an ongoing basis:
���The Company has not adjusted the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers the promised good or services to the customer and when the customer pays for that good or service would be one year or less; and
•The Company has elected to exclude disclosures related to unsatisfied performance obligations where the related contract has a duration of one year or less; or where the consideration is entirely variable. Accordingly, the Company's disclosure related to unsatisfied performance obligations is limited to the fixed portion of fees related to metals services in the Harsco Environmental Segment.
Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Additionally, in certain contracts, the Company facilitates shipping and handling activities after control has transferred to the customer. The Company has elected to record all shipping and handling activities as costs to fulfill a contract. In situations where the shipping and handling costs have not been incurred at the time revenue is recognized, the respective shipping and handling costs are accrued.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records deferred tax assets to the extent that the Company believes that these assets will more likely than not be realized. In making such determinations, the Company considers all available positive and negative evidence, including future reversals of existing deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial results. In the eventIf the Company was to determinedetermines that it wouldwill not be able to realize deferred income tax assets in the future, a valuation allowance is recorded. If sufficient positive evidence arises in excessthe future indicating that all or a portion of their net recorded amount, an adjustment tothe deferred tax assets meet the more likely than not standard for realization, the valuation allowance would be madereduced accordingly in the period that would reduce the provision for income taxes.such a conclusion is reached.
The Company prepares and files tax returns based on interpretation of tax laws and regulations and records its provision for income taxes based on these interpretations. Uncertainties may exist in estimating the Company's tax provisions and in filing tax returns in the many jurisdictions in which the Company operates, and as a result these interpretations may give rise to an uncertain tax position. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on its technical merits. Each subsequent period the Company determines if existing or new uncertain tax positions meet a more likely than not recognition threshold and adjustadjusts accordingly.
The Company recognizes interest and penalties related to unrecognized tax benefits within Income tax expense in the accompanying Consolidated Statements of Operations. Accrued interest and penaltiesLiabilities for uncertain tax positions are included in Other liabilities on the Consolidated Balance Sheets.
The significant assumptions and estimates described in the preceding paragraphs are important contributors to the effective tax rate each year.
See Note 11, Income Taxes, for additional information.
Accrued Insurance and Loss Reserves
The Company retains a significant portion of the risk for certain U.S. workers' compensation, U.K. employers' liability, automobile, general and product liability losses. During 2018, 20172021, 2020 and 2016,2019, the Company recorded insurance expense from continuing operations related to these lines of coverage of $14.3$25.6 million, $16.4$21.1 million and $15.0$12.5 million, respectively. Reserves have been recorded that reflect the undiscounted estimated liabilities including claims incurred but not reported. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Changes in the estimates of the reserves are included in net income (loss)income(loss) in the period determined. During 2018, 20172021, 2020 and 2016,2019, the Company recorded retrospective insurance reserve adjustments that decreased pre-tax insurance expense
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from continuing operations for self-insured programs by $2.7$0.2 million, $2.6$1.3 million and $5.4$0.8 million, respectively. At
December 31, 20182021 and 2017,2020, the Company has recorded liabilities of $60.3$28.3 million and $33.6$27.3 million, respectively, related to both asserted as well as unasserted insurance claims. Included in the balances at December 31, 20182021 and 20172020 were $34.2$4.1 million and $4.1$5.2 million, respectively, of recognized liabilities covered by insurance carriers. Amounts estimated to be paid within one year have been included in Other current caption, Insurance liabilities, with the remainder included in non-current caption, InsuranceOther liabilities, on the Consolidated Balance Sheets.
| (In thousands) | 2018 | 2017 | 2016 | |||||||||
| Warranty reserves, beginning of the year | $ | 5,956 | $ | 6,281 | $ | 7,844 | ||||||
| Accruals for warranties issued during the year | 4,596 | 5,528 | 6,439 | |||||||||
| Reductions related to pre-existing warranties | (3,730 | ) | (3,792 | ) | (5,611 | ) | ||||||
| Acquisitions (See Note 3) | 249 | — | — | |||||||||
| Warranties paid | (1,293 | ) | (2,078 | ) | (2,372 | ) | ||||||
| Other (principally foreign currency translation) | (67 | ) | 17 | (19 | ) | |||||||
| Warranty reserves, end of the year | $ | 5,711 | $ | 5,956 | $ | 6,281 | ||||||
Foreign Currency Translation
The financial statements of the Company's subsidiaries outside the U.S., except for those subsidiaries located in highly inflationary economies and those entities for which the U.S. dollar is the currency of the primary economic environment in which the entity operates, are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates at the balance sheet date. Resulting translation adjustments are recorded in the cumulative translation adjustment account, a separate component of Accumulated other comprehensive lossAOCI on the Consolidated Balance Sheets. Income and expense items are translated at average monthly exchange rates. Gains and losses from foreign currency transactions are included in Operating income from continuing operations. For subsidiaries operating in highly inflationary economies, and those entities for which the U.S. dollar is the currency of the primary economic environment in which the entity operates, gains and losses on foreign currency transactions and balance sheet translation adjustments are included in Operating income from continuing operations.
Financial Instruments and Hedging
The Company has operations throughout the world that are exposed to fluctuations in related foreign currencies in the normal course of business. The Company seeks to reduce exposure to foreign currency fluctuations through the use of forward exchange contracts. The Company does not hold or issue financial instruments for trading purposes and it is the Company's policy to prohibit the use of derivatives for speculative purposes. The Company has a Foreign Currency Risk Management Committee that meets periodically to monitor foreign currency risks.
The Company executes foreign currency exchange forward contracts to hedge transactions for firm purchase commitments, to hedge variable cash flows of forecasted transactions and for export sales denominated in foreign currencies. These contracts are generally for 90 days or less; however, where appropriate, longer-term contracts may be utilized. For those contracts that are designated as qualified cash flow hedges, gains or losses are recorded in Accumulated other comprehensive lossAOCI on the Consolidated Balance Sheets.
The Company uses interest rate swaps in conjunction with certain debt issuances in order to secure a fixed interest rate. The interest rate swaps are recorded on the Consolidated Balance Sheets at fair value, with changes in value attributed to the effect of the swaps’ interest spread and changes in the credit worthiness of the counter-parties recorded in Accumulated other comprehensive loss.AOCI.
Amounts recorded in Accumulated other comprehensive lossAOCI on the Consolidated Balance Sheets are reclassified into operationsincome in the same period or periods during which the hedged forecasted transaction affects income. The cash flows from these contracts are classified consistent with the cash flows from the transaction being hedged (e.g., the cash flows related to contracts to hedge the purchase of fixed assets are included in cash flows from investing activities, etc.). The Company also enters into certain forward exchange contracts that are not designated as hedges. Gains and losses on these contracts are recognized in operations based on changes in fair market value. For fair value hedges of a firm commitment, the gain or loss on the derivative and the offsetting gain or loss on the hedged firm commitment are recognized currently in operations.
See Note 15, Financial Instruments, for additional information.
Earnings Per Share
Basic earnings per share are calculated using the weighted-average shares of common stock outstanding, while diluted earnings per share reflect the dilutive effects of stock-based compensation. Dilutive securities are not included in the computation of loss per share when the Company reports a net loss from continuing operations as the impact would be anti-dilutive. All share and per share amounts are restated for any stock splits and stock dividends that occur prior to the issuance of the financial statements.
See Note 13, Capital Stock, for additional information.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
Impact of COVID-19
Beginning in early 2020, overall global economic conditions were significantly impacted by COVID-19. The Company 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. The ultimate duration and impact of COVID-19 on the Company and its customers' operations is presently unclear, though the Company continues to operate as a provider of certain essential services in the U.S and other countries.
The Company did not record any long-lived asset impairments, indefinite-lived asset impairments, goodwill impairments, significant inventory write-downs or incremental accounts receivable reserves for current expected credit losses during the year ended December 31, 2021 related to COVID-19. However, such charges are possible in future periods, which could have an adverse effect on the Company's future results of operations, cash flows, or financial condition.
2. Recently Adopted and Recently Issued Accounting Standards
The following accounting standards have been adopted in 2018:2021:
On January 1, 2018, the Company adopted changes, with subsequent amendments, issued by the Financial Accounting Standards Board ("FASB") related to the recognition of revenue from contracts with customers. The changes clarify the principles for recognizing revenue and develop a common revenue standard. The core principle of the changes is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption of these changes resulted in the following modifications to the Company's revenue recognition process:
| (In thousands) | Balance at December 31, 2017 | Impact of Adoption | Balance at January 1, 2018 | |||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Trade accounts receivable, net | $ | 288,034 | $ | 532 | $ | 288,566 | ||||||
| Inventories | 178,293 | (59,793 | ) | 118,500 | ||||||||
| Current portion of contract assets | — | 18,248 | 18,248 | |||||||||
| Other current assets | 39,332 | 179 | 39,511 | |||||||||
| Total current assets | 592,092 | (40,834 | ) | 551,258 | ||||||||
| Contract assets | — | 3,566 | 3,566 | |||||||||
| Other assets | 15,263 | 1,337 | 16,600 | |||||||||
| Total assets | 1,578,685 | (35,931 | ) | 1,542,754 | ||||||||
| LIABILITIES | ||||||||||||
| Current liabilities: | ||||||||||||
| Current portion of advances on contracts | 117,958 | (78,507 | ) | 39,451 | ||||||||
| Other current liabilities | 133,368 | 13,995 | 147,363 | |||||||||
| Total current liabilities | 474,128 | (64,512 | ) | 409,616 | ||||||||
| Advances on contracts | — | 24,564 | 24,564 | |||||||||
| Other liabilities | 40,846 | 1,580 | 42,426 | |||||||||
| Total liabilities | 1,363,520 | (38,368 | ) | 1,325,152 | ||||||||
| HARSCO CORPORATION STOCKHOLDERS' EQUITY | ||||||||||||
| Accumulated other comprehensive loss | (546,582 | ) | (1,520 | ) | (548,102 | ) | ||||||
| Retained earnings | 1,157,801 | 3,957 | 1,161,758 | |||||||||
| Total Harsco Corporation stockholders' equity | 170,451 | 2,437 | 172,888 | |||||||||
| Total equity | 215,165 | 2,437 | 217,602 | |||||||||
| Total liabilities and equity | 1,578,685 | (35,931 | ) | 1,542,754 | ||||||||
| December 31, 2018 | ||||||||||||
| (In thousands) | As Reported | Impact of Adoption | As Reported - Less Impact of Adoption | |||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Trade accounts receivable, net | $ | 291,213 | $ | 12,767 | $ | 303,980 | ||||||
| Inventories | 133,111 | 44,510 | 177,621 | |||||||||
| Current portion of contract assets | 24,254 | (24,254 | ) | — | ||||||||
| Other current assets | 35,128 | (620 | ) | 34,508 | ||||||||
| Total current assets | 605,034 | 32,403 | 637,437 | |||||||||
| Deferred income tax assets | 49,114 | 2,401 | 51,515 | |||||||||
| Other assets | 17,442 | (1,681 | ) | 15,761 | ||||||||
| Total assets | 1,632,867 | 33,123 | 1,665,990 | |||||||||
| December 31, 2018 | ||||||||||||
| (In thousands) | As Reported | Impact of Adoption | As Reported - Less Impact of Adoption | |||||||||
| LIABILITIES | ||||||||||||
| Current liabilities: | ||||||||||||
| Current portion of advances on contracts | 31,317 | 86,011 | 117,328 | |||||||||
| Other current liabilities | 118,708 | (9,449 | ) | 109,259 | ||||||||
| Total current liabilities | 416,996 | 76,562 | 493,558 | |||||||||
| Advances on contracts | 37,675 | (37,675 | ) | — | ||||||||
| Other liabilities | 46,005 | (253 | ) | 45,752 | ||||||||
| Total liabilities | 1,319,491 | 38,634 | 1,358,125 | |||||||||
| HARSCO CORPORATION STOCKHOLDERS' EQUITY | ||||||||||||
| Accumulated other comprehensive loss | (567,107 | ) | 1,104 | (566,003 | ) | |||||||
| Retained earnings | 1,298,752 | (6,636 | ) | 1,292,116 | ||||||||
| Total Harsco Corporation stockholders' equity | 268,263 | (5,532 | ) | 262,731 | ||||||||
| Noncontrolling interests | 45,113 | 21 | 45,134 | |||||||||
| Total equity | 313,376 | (5,511 | ) | 307,865 | ||||||||
| Total liabilities and equity | 1,632,867 | 33,123 | 1,665,990 | |||||||||
| Twelve Months Ended | ||||||||||||
| December 31, 2018 | ||||||||||||
| (In thousands, except per share amounts) | As Reported | Impact of Adoption | As Reported - Less Impact of Adoption | |||||||||
| Revenues from continuing operations: | ||||||||||||
| Services revenues | $ | 1,007,239 | $ | 4,921 | $ | 1,012,160 | ||||||
| Product revenues | 715,141 | 6,084 | 721,225 | |||||||||
| Total revenues | 1,722,380 | 11,005 | 1,733,385 | |||||||||
| Costs and expenses from continuing operations: | ||||||||||||
| Costs of services sold | 780,930 | 5,300 | 786,230 | |||||||||
| Costs of products sold | 507,807 | 11,642 | 519,449 | |||||||||
| Selling, general and administrative costs | 238,690 | 117 | 238,807 | |||||||||
| Total costs and expenses | 1,531,453 | 17,059 | 1,548,512 | |||||||||
| Operating income from continuing operations | 190,927 | (6,054 | ) | 184,873 | ||||||||
| Interest expense | (38,148 | ) | 1,929 | (36,219 | ) | |||||||
| Income from continuing operations before income taxes | 157,254 | (4,125 | ) | 153,129 | ||||||||
| Income tax expense | (12,899 | ) | 1,446 | (11,453 | ) | |||||||
| Income from continuing operations | 144,739 | (2,679 | ) | 142,060 | ||||||||
| Net income | 145,013 | (2,679 | ) | 142,334 | ||||||||
| Less: Net income attributable to noncontrolling interests | (7,956 | ) | (21 | ) | (7,977 | ) | ||||||
| Net income attributable to Harsco Corporation | 137,057 | (2,700 | ) | 134,357 | ||||||||
| Amounts attributable to Harsco Corporation common stockholders: | ||||||||||||
| Income from continuing operations, net of tax | 136,783 | (2,700 | ) | 134,083 | ||||||||
| Net income attributable to Harsco Corporation common stockholders | 137,057 | (2,700 | ) | 134,357 | ||||||||
Basic earnings per share attributable to Harsco Corporation common stockholders (a): | ||||||||||||
| Continuing operations | 1.69 | (0.03 | ) | $ | 1.66 | |||||||
| Basic earnings per share attributable to Harsco Corporation common stockholders | 1.70 | (0.03 | ) | $ | 1.66 | |||||||
Diluted earnings per share attributable to Harsco Corporation common stockholders (a): | ||||||||||||
| Continuing operations | 1.64 | (0.03 | ) | $ | 1.60 | |||||||
| Diluted earnings per share attributable to Harsco Corporation common stockholders | 1.64 | (0.03 | ) | $ | 1.61 | |||||||
| Twelve Months Ended | ||||||||||||
| December 31, 2018 | ||||||||||||
| (In thousands) | As Reported | Impact of Adoption | As Reported - Less Impact of Adoption | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 145,013 | $ | (2,679 | ) | $ | 142,334 | |||||
| Adjustments to reconcile net income to net cash used by operating activities: | ||||||||||||
| Deferred income tax benefit | (6,522 | ) | (1,446 | ) | (7,968 | ) | ||||||
| Changes in assets and liabilities: | ||||||||||||
| Accounts receivable | (16,881 | ) | (13,143 | ) | (30,024 | ) | ||||||
| Inventories | (14,706 | ) | 10,330 | (4,376 | ) | |||||||
| Contract assets | (3,312 | ) | 3,312 | — | ||||||||
| Advances on contracts | 3,057 | (1,378 | ) | 1,679 | ||||||||
| Other assets and liabilities | (33,527 | ) | 5,004 | (28,523 | ) | |||||||
| Net cash used by operating activities | 192,022 | — | 192,022 | |||||||||
The following accounting standards have been issued and become effective for the Company at a future date:
In February 2016,March 2020, the FASB issued changes that provide companies with subsequent amendments,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 accounting for leases, which become effective forseveral jurisdictions around the Company on January 1, 2019.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 introduce a lessee model that brings most leases onto the balance sheet, which will result in an increase in lease-related assetsprovide optional expedients and liabilities. The changes also align many of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. Furthermore, the changes addressexceptions for applying U.S. GAAP to contracts, hedging relationships, and other concerns related to the current lease model such as eliminating the requirement in current guidance for an entity to use bright-line tests in determining lease classification. The changes also require lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. The changes allow for a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application. Entities may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statement as the date of initial application. The Company has elected to apply the transition requirements at thetransactions affected by reference rate reform if certain criteria are met. In January 1, 2019 effective date
In August 2017,2020, the FASB issued changes which expand and refine hedgesimplified the accounting for bothcertain financial instruments with characteristics of liabilities and non-financial risk components, aligns the recognition and presentation of the effects of hedgingequity, including convertible instruments and hedged items in the financial statements and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in this update should be applied to hedging relationships existingcontracts on the date of adoption, which includes a cumulative-effect adjustment to eliminate any ineffectiveness recorded to accumulated other comprehensive income or loss with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year in which adoption occurred. Presentation and disclosure amendments are required to be applied prospectively.an entity’s own equity. The changes become effective for the Company on January 1, 2019.2022. Management has determinedconcluded that this standard will not have an impact on the Company's consolidated financial statements.
In November 2021, the FASB issued changes that improve the transparency of government assistance received by entities. The changes require disclosure of the nature of transactions, including significant terms and conditions, accounting policies used, and financial statement line items affected by the transactions. The changes become effective January 1, 2022. Other than required expanded disclosures, the adoption of these changes will not have a material impact on the Company's consolidated financial statements.
3. Acquisitions and Dispositions
Harsco Rail Segment
In February 2018, the FASB issued changes which allow entities to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings in their consolidated financial statements. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income
The former Harsco Rail Segment's balance sheet positions as of stranded income tax effects in accumulated other comprehensive income at both December 31, 20172021 and 2018 resulting from the Tax Act which the Company plans to reclassify upon initial adoption2020 are presented as Assets held-for-sale and Liabilities of these changes.
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| (in thousands) | December 31 2021 | December 31 2020 | ||||||||||||
| Trade accounts receivable, net | $ | 33,689 | $ | 52,077 | ||||||||||
| Other receivables | 4,740 | 3,045 | ||||||||||||
| Inventories | 103,560 | 112,013 | ||||||||||||
| Current portion of contract assets | 94,597 | 52,240 | ||||||||||||
| Other current assets | 25,442 | 27,703 | ||||||||||||
| Property, plant and equipment, net | 39,524 | 37,855 | ||||||||||||
| Right-of-use assets, net | 3,108 | 4,354 | ||||||||||||
| Goodwill | 13,026 | 13,026 | ||||||||||||
| Intangible assets, net | 3,081 | 3,449 | ||||||||||||
| Deferred income tax assets | 6,064 | 4,906 | ||||||||||||
| Other assets | 6,432 | 6,316 | ||||||||||||
| Total Rail assets included in Assets held-for-sale | $ | 333,263 | $ | 316,984 | ||||||||||
| Accounts payable | $ | 46,076 | $ | 53,937 | ||||||||||
| Accrued compensation | 2,171 | 1,503 | ||||||||||||
| Current portion of operating lease liabilities | 1,619 | 1,745 | ||||||||||||
| Current portion of advances on contracts | 62,401 | 37,462 | ||||||||||||
| Other current liabilities | 49,732 | 33,280 | ||||||||||||
| Advances on contracts | — | 44,731 | ||||||||||||
| Operating lease liabilities | 1,775 | 2,734 | ||||||||||||
| Deferred tax liabilities | 5,736 | 4,461 | ||||||||||||
| Other liabilities | 982 | 925 | ||||||||||||
| Total Rail liabilities included in Liabilities of assets held-for-sale | $ | 170,492 | $ | 180,778 | ||||||||||
December 31, 2018.2021, 2020, and 2019. Certain key selected financial information included in Income (loss) from discontinued operations, net of tax for the former Harsco Rail Segment is as follows:
| Years ended December 31 | ||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Amounts directly attributable to the former Harsco Rail Segment: | ||||||||||||||||||||
| Service revenues | $ | 32,425 | $ | 31,642 | $ | 30,254 | ||||||||||||||
| Product revenues | 266,221 | 298,189 | 269,119 | |||||||||||||||||
| Cost of services sold | 17,272 | 23,480 | 21,883 | |||||||||||||||||
| Cost of products sold | 251,897 | 235,040 | 192,310 | |||||||||||||||||
| Income (loss) from discontinued businesses | (19,967) | 23,096 | 25,406 | |||||||||||||||||
| Additional amounts allocated to the former Harsco Rail Segment: | ||||||||||||||||||||
Selling, general and administrative expenses (a) | $ | 178 | $ | — | $ | — | ||||||||||||||
(a) The Company incurred approximately $1has allocated directly attributable transaction costs to discontinued operations.
The Company has retained corporate overhead expenses previously allocated to the former Harsco Rail Segment of $4.2 million for each of costs associated with the Altek acquisition in the captionyears ended December 31, 2021, 2020, and 2019 as part of Selling, general and administrative expenses in the Consolidated Statements of Operations.
| Preliminary Valuation | ||||||||||||
| (In millions) | June 30 2018 | Measurement Period Adjustments (a) | December 31 2018 | |||||||||
| Cash and cash equivalents | $ | 1.7 | $ | — | $ | 1.7 | ||||||
| Net working capital | (1.5 | ) | 0.2 | (1.3 | ) | |||||||
| Property, plant and equipment | 3.3 | — | 3.3 | |||||||||
| Intangible assets | 52.5 | 0.2 | 52.7 | |||||||||
| Goodwill | 20.9 | 1.6 | 22.5 | |||||||||
| Net deferred tax liabilities | (8.5 | ) | — | (8.5 | ) | |||||||
| Other liabilities | (0.3 | ) | — | (0.3 | ) | |||||||
| Total identifiable net assets of Altek | $ | 68.1 | $ | 2.0 | $ | 70.1 | ||||||
| Amortization Period | Preliminary Valuation | |||||||||||||
| (Dollars in millions) | June 30 2018 | Measurement Period Adjustments (a) | December 31 2018 | |||||||||||
| Customer related | 14.2 years | $ | 11.5 | $ | 0.1 | $ | 11.6 | |||||||
| Technology related | 10.3 years | 36.5 | 0.1 | 36.6 | ||||||||||
| Trade names | 15.0 years | 4.5 | — | 4.5 | ||||||||||
| Total identifiable intangible assets of Altek | $ | 52.5 | $ | 0.2 | $ | 52.7 | ||||||||
| (In thousands) | Contingent Consideration | |||
| Balance, June 30, 2018 | $ | 10,097 | ||
Measurement period adjustment (b) | 1,958 | |||
Fair value adjustment (c) | (2,939 | ) | ||
Foreign currency translation (c) | (696 | ) | ||
| Balance, December 31, 2018 | $ | 8,420 | ||
| (In thousands) | December 31 2018 | December 31 2017 | ||||||
| Trade accounts receivable | $ | 295,847 | $ | 292,765 | ||||
| Less: Allowance for doubtful accounts | (4,634 | ) | (4,731 | ) | ||||
| Trade accounts receivable, net | $ | 291,213 | $ | 288,034 | ||||
Other receivables (a) (b) | $ | 54,182 | $ | 20,224 | ||||
| Years Ended December 31 | ||||||||||||
| (In thousands) | 2018 | 2017 | 2016 | |||||||||
| Provision (benefit) for doubtful accounts related to trade accounts receivable | $ | 372 | $ | 5,346 | $ | (38 | ) | |||||
The increaseCompany's former Harsco Rail segment is currently manufacturing highly-engineered equipment under large long-term fixed-price contracts with the SBB, the infrastructure manager for most of the railway in the provision for doubtful accounts forU.K. ("Network Rail"), and the year ended 2017 is due principally tonational railway company in Germany ("Deutsche Bahn"). Post-engineering, the write-off of certain pre-administration receivable balances for oneCompany has made significant progress in the development of the Company's customersprototype/initial units for certain portions of these contracts during the fourth quarter of 2021, which has provided clarity in Australia.
| (In thousands) | December 31 2018 | December 31 2017 | ||||||
| Finished goods | $ | 17,223 | $ | 26,415 | ||||
| Work-in-process | 21,787 | 24,367 | ||||||
Contracts-in-process (c) | — | 45,599 | ||||||
| Raw materials and purchased parts | 72,194 | 58,943 | ||||||
| Stores and supplies | 21,907 | 22,969 | ||||||
| Total inventories | $ | 133,111 | $ | 178,293 | ||||
| Valued at lower of cost or market: | ||||||||
| LIFO basis | $ | 80,590 | $ | 80,644 | ||||
| FIFO basis | 8,611 | 52,832 | ||||||
| Average cost basis | 43,910 | 44,817 | ||||||
| Total inventories | $ | 133,111 | $ | 178,293 | ||||
| (In thousands) | December 31 2017 | |||
| Contract costs accumulated to date | $ | 73,740 | ||
Estimated forward loss provisions for contracts-in-process (d) | (28,141 | ) | ||
Contracts-in-process (c)(e) | $ | 45,599 | ||
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The first contract with SBB is complete, and the second contract is 78% complete as of December 31, 2021. The contracts with Network Rail and Deutsche Bahn are 42% and 18% complete, respectively, as of December 31, 2021.
The following is selected financial information included on the Consolidated Statements of Cash Flows attributable to the former Harsco Rail Segment:
| Years Ended December 31 | ||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Non-cash operating items | ||||||||||||||||||||
| Depreciation and amortization | $ | 4,329 | $ | 5,450 | $ | 4,876 | ||||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||
| Purchases of property, plant and equipment | 1,406 | 7,962 | 15,274 | |||||||||||||||||
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 cash, inclusive of post-closing adjustments. In addition, as part of the acquisition, the Company entered into a non-compete agreement with Stericycle, Inc. Concurrent to the ESOL acquisition, the Company entered into an agreement with Stericycle, Inc. related to certain Stericycle, Inc. customers who receive services from both ESOL and other Stericycle, Inc. businesses under a single contractual arrangement. The revenue pertaining to services rendered to these customers are invoiced centrally through Stericycle, Inc. billing systems and ESOL's portion of the revenue, less a management fee, is then distributed to the Company.
The fair value recorded for the assets acquired and liabilities assumed for ESOL is as follows:
| (In millions) | April 6 2020 | Measurement Period Adjustments | Final Valuation | |||||||||||||||||
| 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, net | 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) | (50.1) | |||||||||||||||||
| Accrued expenses | (17.5) | (1.8) | (19.3) | |||||||||||||||||
| Current portion of operating lease liabilities | (16.6) | — | (16.6) | |||||||||||||||||
| Other current liabilities | (6.4) | (0.2) | (6.6) | |||||||||||||||||
| Environmental liabilities | (24.4) | — | (24.4) | |||||||||||||||||
| Deferred income taxes | (15.5) | (1.5) | (17.0) | |||||||||||||||||
| Operating lease liabilities | (39.4) | — | (39.4) | |||||||||||||||||
| Total identifiable net assets of ESOL | 436.3 | (9.8) | 426.5 | |||||||||||||||||
| Non-compete agreement | 2.5 | — | 2.5 | |||||||||||||||||
| Total identifiable net assets of ESOL, including non-compete agreement | $ | 438.8 | $ | (9.8) | $ | 429.0 | ||||||||||||||
The 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.
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The following table details the valuation of identifiable intangible assets and amortization periods for ESOL and the non-compete agreement:
| (Dollars in millions) | Weighted-Average Amortization Period | April 6 2020 | Measurement Period Adjustments | Final Valuation | ||||||||||||||||||||||
| 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 recognized $24.2valued the identifiable intangible assets using methodologies under the income approach including the multi-period excess earnings method, the distributor method, and the with-and-without method.
The years ended December 31, 2020 and 2019 included ESOL direct acquisition and integration costs of $49.0 million and $7.3 million, respectively, which are included in Selling, general and administrative expenses, within the Corporate function, in the Consolidated Statements of Operations. In addition to the acquisition and integration costs reflected in the Consolidated Statements of Operations, debt issuance costs associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, as Long-term debt on the Consolidated Balance Sheets.
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, soil and dredged materials, 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 revenuescash 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. At December 31, 2021 and 2020, the present value of the expected reimbursement is approximately $8 million and $11 million, respectively. See Footnote 18, Other (Income) Expenses, Net, for additional details.
The fair value recorded for the contracts with SBB,assets acquired and liabilities assumed for Clean Earth is as follows:
| (In millions) | June 28 2019 | Measurement Period Adjustments | Final Valuation | |||||||||||||||||
| Cash and cash equivalents | $ | 42.8 | $ | (39.2) | $ | 3.6 | ||||||||||||||
| Trade accounts receivable, net | 63.7 | (1.2) | 62.5 | |||||||||||||||||
| Other receivables | 0.8 | 1.3 | 2.1 | |||||||||||||||||
| Other current assets | 8.7 | (1.4) | 7.3 | |||||||||||||||||
| Property, plant and equipment | 75.6 | 1.4 | 77.0 | |||||||||||||||||
| Right-of-use assets, net | 14.4 | 11.4 | 25.8 | |||||||||||||||||
| Goodwill | 313.8 | 16.8 | 330.6 | |||||||||||||||||
| Intangible assets | 261.1 | (18.9) | 242.2 | |||||||||||||||||
| Other assets | 4.0 | (2.8) | 1.2 | |||||||||||||||||
| Accounts payable | (23.0) | (0.1) | (23.1) | |||||||||||||||||
| Acquisition consideration payable | (39.2) | 39.2 | — | |||||||||||||||||
| Other current liabilities | (18.0) | (1.7) | (19.7) | |||||||||||||||||
| Net deferred taxes liabilities | (51.2) | 5.5 | (45.7) | |||||||||||||||||
| Operating lease liabilities | (11.1) | (8.4) | (19.5) | |||||||||||||||||
| Other liabilities | (6.5) | (2.1) | (8.6) | |||||||||||||||||
| Total identifiable net assets of Clean Earth | $ | 635.9 | $ | (0.2) | $ | 635.7 | ||||||||||||||
The goodwill is attributable to strategic benefits, including enhanced operational and financial scale, as well as product and market diversification that the Company expects to realize. The Company expects $16.3 million of goodwill to be deductible for income tax purposes through 2033.
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The following table details the valuation of identifiable intangible assets and amortization periods for Clean Earth:
| (Dollars in millions) | Weighted-Average Amortization Period | June 28 2019 | Measurement Period Adjustments | Final Valuation | ||||||||||||||||||||||
| Permits | 18 years | $ | 176.1 | $ | (6.0) | $ | 170.1 | |||||||||||||||||||
| Customer relationships and backlog | 8 years | 33.4 | (12.9) | 20.5 | ||||||||||||||||||||||
| Air rights | Usage based (b) | 25.6 | — | 25.6 | ||||||||||||||||||||||
| Trade names | 12 years | 26.0 | — | 26.0 | ||||||||||||||||||||||
| Total identifiable intangible assets of Clean Earth | $ | 261.1 | $ | (18.9) | $ | 242.2 | ||||||||||||||||||||
(b) The Company estimates that based on current usage that the expected useful life would be 27 years.
The Company valued the identifiable intangible assets using an over time basis, utilizing a cost-to-costincome-based approach that utilized either the multi-period excess earnings method foror the relief from royalty method.
The year ended December 31, 2018.2019 included Clean Earth direct acquisition costs of $15.2 million, which are included in Selling, general and administrative expenses, within the Corporate function, in the Consolidated Statements of Operations. In addition to the acquisition costs reflected in the Consolidated Statements of Operations, debt issuance costs associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, as Long-term debt on the Consolidated Balance Sheets.
Harsco Industrial Segment
In May 2019, the Company announced its intent to divest the businesses that comprised the Harsco Industrial Segment; AXC, IKG and PK. These disposals represented a strategic shift and accelerated the transformation of the Company's portfolio of businesses into a leading provider of environmental solutions and services. In July 2019, the Company sold AXC for $600 million in cash and recognized a gain on sale of $527.9 million pre-tax (or approximately $421 million after-tax). In November 2019, the Company sold PK for approximately $60 million in cash and recognized a gain on sale of $41.2 million pre-tax (or approximately $33 million after-tax). In January 2020, the Company sold IKG for $85.0 million, including a note receivable with a face value of $40.0 million and recognized an $18.4 million pre-tax gain on sale (or approximately $9 million after-tax). In 2019 the gains on the sales of AXC and PK and in 2020 the gain on the sale of IKG have been recorded in the Consolidated Statements of Operations as discontinued operations.
The Harsco Industrial Segment was historically a separate reportable segment with primary operations in North America and Latin America. In accordance with U.S. GAAP, the results of the former Harsco Industrial Segment are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the years ended December 31, 20172021, 2020, and 2016,2019. Certain key selected financial information included in net income from discontinued operations for the former Harsco Industrial Segment is as follows:
| Years ended December 31 | ||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Amounts directly attributable to the former Harsco Industrial Segment: | ||||||||||||||||||||
| Total revenues | $ | — | $ | 10,203 | $ | 306,972 | ||||||||||||||
| Cost of products sold | — | 8,082 | 224,811 | |||||||||||||||||
| Gain on sale from discontinued businesses | — | 18,281 | 569,135 | |||||||||||||||||
| Income (loss) from discontinued businesses | (3,510) | (1,578) | 27,823 | |||||||||||||||||
| Additional amounts allocated to the former Harsco Industrial Segment: | ||||||||||||||||||||
Selling, general and administrative expenses (c) | $ | 3,510 | $ | 2,695 | $ | 8,429 | ||||||||||||||
Interest expense (d) | — | — | 11,237 | |||||||||||||||||
Loss on early extinguishment of debt (e) | — | — | 5,314 | |||||||||||||||||
(c) The Company recognized $42.5 million and $0.2 million, respectively, of revenue based on the percentage-of-completion (units-of-delivery) method of accounting, whereby revenues and estimated averageallocated directly attributable transaction costs to discontinued operations. In addition, this caption includes costs directly attributable to retained contingent liabilities of the units to be produced under the contracts are recognized as deliveries are made or accepted. For 2016, consolidated product revenue gross margins were not significantly impacted by the revenue recognized under the SBB contracts. For 2018 and 2017, product gross margins would have been 100 basis points and 200 basis points higher, respectively, excluding the revenue recognized under the SBB contract.former Harsco Industrial Segment.
(d) The Company is approximately 99% complete on the first contract and 26% complete on the second contract with SBB as of December 31, 2018.
(e) The Company allocated the $5.3 million write-off of deferred financing costs to discontinued operations as it directly attributed to the mandatory repayment of certain debt resulting from the AXC disposal.
The Company retained corporate overhead expenses previously allocated to the former Harsco Industrial Segment of $4.0 million in 2019 as part of Selling, general and administrative expenses on the Consolidated Statements of Operations.
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4. Accounts Receivable and Note Receivable
Accounts receivable consist of the following:
| (In thousands) | December 31 2021 | December 31 2020 | ||||||||||||
| Trade accounts receivable | $ | 385,143 | $ | 362,801 | ||||||||||
| Less: Allowance for expected credit losses | (7,262) | (7,488) | ||||||||||||
| Trade accounts receivable, net | $ | 377,881 | $ | 355,313 | ||||||||||
Other receivables (a) | $ | 33,059 | $ | 31,208 | ||||||||||
(a)Other receivables include employee receivables, insurance receivable, tax claims and refunds and other miscellaneous receivables not included in Trade accounts receivable, net.
The provision for doubtful accounts related to trade accounts receivable was as follows:
| Years Ended December 31 | ||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Provision for expected credit losses and doubtful accounts related to trade accounts receivable | $ | 589 | $ | 1,961 | $ | 7,123 | ||||||||||||||
The provision for doubtful accounts in 2019 primarily included a provision in the Harsco Environmental Segment related to a customer in the U.K entering administration which was subsequently written off in 2020.
At December 31, 2021 $8.0 million of the Company's trade accounts receivable were past due by twelve months or more, with $5.4 million of this amount reserved. Collection of the remaining balance is still ultimately expected.
In January 2020, the Company received $145sold IKG for $85.0 million inincluding cash net, and (ii)a note receivable, subject to post-closing adjustments. The note receivable from the requirement for the Company to fund certain obligations to Brand through 2018 were satisfied, the presentbuyer has a face value of which equaled $20.6 million. In addition, the Company received $1.4$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 fees, rent and expenses frominterest 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 Brand Entities. As a result of the sale, the Company’s obligation to make quarterlynote receivable agreement. Because there are no scheduled payments related to the unit adjustment liability under the terms of a limited partnership agreement that governed the operationnote receivable, the balance is not classified as current and is included in the caption Other assets on the Consolidated Balance Sheets. The initial fair value of the strategic venture terminated. The Company recognized a loss on the sale of its equity interest in Brand in the amount of $43.5note receivable was $34.3 million which was reflected in Change incalculated 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 twelve months ended December 31, 2021, the Company received a payment of $6.4 million related to excess cash flow. At December 31, 2021 the amortized cost of the note receivable was $31.0 million, compared with a fair value to unit adjustment liability and loss on dilution and sale of equity method investment$32.3 million.
| (In thousands) | December 31 2021 | December 31 2020 | ||||||||||||
| Note receivable | $ | 31,025 | $ | 35,806 | ||||||||||
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5. Inventories
Inventories consist of the following:
| (In thousands) | December 31 2021 | December 31 2020 | ||||||||||||
| Finished goods | $ | 8,323 | $ | 7,749 | ||||||||||
| Work-in-process | 5,393 | 2,795 | ||||||||||||
| Raw materials and purchased parts | 21,188 | 20,259 | ||||||||||||
| Stores and supplies | 35,589 | 30,198 | ||||||||||||
| Total inventories | $ | 70,493 | $ | 61,001 | ||||||||||
| Valued at lower of cost or market: | ||||||||||||||
| LIFO basis | $ | 14,133 | $ | 14,690 | ||||||||||
| FIFO basis | 7,567 | 5,485 | ||||||||||||
| Average cost basis | 48,793 | 40,826 | ||||||||||||
| Total inventories | $ | 70,493 | $ | 61,001 | ||||||||||
Inventories valued on the Consolidated StatementLIFO basis at both December 31, 2021 and December 31, 2020 were approximately $13 million less than the amounts of Operations.
| (In thousands) | Period From October 1, 2015 Through June 30 2016 (a) | |||
| Summarized Statement of Operations Information of Brand: | ||||
| Net revenues | $ | 2,333,561 | ||
| Gross profit | 499,005 | |||
| Net income attributable to Brand Energy & Infrastructure Services, Inc. and Subsidiaries | 20,756 | |||
| Harsco's equity in income of Brand | 5,686 | |||
such inventories valued at current costs. There was no change in fair value to the unit adjustment liability for the years ended 2018 and 2017 due to the salesignificant impact on net income as a result of the interest in Brand. For the year ended 2016, the Company recognized $4.7 million of change in fair value to the unit adjustment liability, exclusive of the fair value adjustment resulting from the decision not to make the quarterly payments in 2016 and the loss related to the sale of the Company's interest, in Change in fair value to the unit adjustment liability and lossreducing certain inventory quantities valued on dilution and sale of equity method investment on the Consolidated Statement of Operations.a LIFO basis during 2021, 2020 or 2019.
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6. Property, Plant and Equipment
Property, plant and equipment consist of the following:
| (In thousands) | Estimated Useful Lives | December 31 2018 | December 31 2017 | (In thousands) | Estimated Useful Lives | December 31 2021 | December 31 2020 | |||||||||||||||||||||||
| Land | — | $ | 10,621 | $ | 10,840 | Land | — | $ | 73,067 | $ | 73,237 | |||||||||||||||||||
| Land improvements | 5-20 years | 16,156 | 14,996 | Land improvements | 5-20 years | 16,970 | 17,500 | |||||||||||||||||||||||
Buildings and improvements (a) | 5-40 years | 191,072 | 198,582 | Buildings and improvements (a) | 5-30 years | 221,236 | 224,909 | |||||||||||||||||||||||
| Machinery and equipment | 3-20 years | 1,538,166 | 1,599,713 | |||||||||||||||||||||||||||
Machinery and equipment (b) | Machinery and equipment (b) | 3-20 years | 1,507,214 | 1,512,966 | ||||||||||||||||||||||||||
| Uncompleted construction | — | 37,713 | 24,387 | Uncompleted construction | — | 63,816 | 39,587 | |||||||||||||||||||||||
| Gross property, plant and equipment | 1,793,728 | 1,848,518 | Gross property, plant and equipment | 1,882,303 | 1,868,199 | |||||||||||||||||||||||||
| Less: Accumulated depreciation | (1,323,828 | ) | (1,368,771 | ) | Less: Accumulated depreciation | (1,228,390) | (1,237,845) | |||||||||||||||||||||||
| Property, plant and equipment, net | $ | 469,900 | $ | 479,747 | Property, plant and equipment, net | $ | 653,913 | $ | 630,354 | |||||||||||||||||||||
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 amountsoperations 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 $20 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 $1.7 millionexpected to be protracted. While the customer has initially indicated that they will not provide compensation, the Company and $5.5 millionthe customer continue to discuss and the Company is evaluating its legal position. In addition, there may be other avenues of property, plantpursuing 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 under capital leases atand thus does not believe it has an asset impairment as of December 31, 20182021. However, the Company will continue to evaluate changes in facts and 2017, respectively.circumstances and record any impairment charge when and if indicated.
7. Goodwill and Other Intangible Assets
Goodwill by Segment
The following table reflects the changes in carrying amounts of goodwill by segment for the years ended December 31, 20182021 and 2017:2020:
| (In thousands) | Harsco Metals & Minerals Segment | Harsco Industrial Segment | Harsco Rail Segment | Consolidated Totals | ||||||||||||
| Balance at December 31, 2016 | $ | 362,386 | $ | 6,839 | $ | 13,026 | $ | 382,251 | ||||||||
| Foreign currency translation | 19,507 | — | — | 19,507 | ||||||||||||
| Balance at December 31, 2017 | 381,893 | 6,839 | 13,026 | 401,758 | ||||||||||||
Changes to goodwill (a) | 22,518 | — | — | 22,518 | ||||||||||||
| Foreign currency translation | (12,724 | ) | — | — | (12,724 | ) | ||||||||||
| Balance at December 31, 2018 | $ | 391,687 | $ | 6,839 | $ | 13,026 | $ | 411,552 | ||||||||
| (In thousands) | Harsco Environmental Segment | Harsco Clean Earth Segment | Consolidated Totals | |||||||||||||||||
| Balance at December 31, 2019 | $ | 395,113 | $ | 330,230 | $ | 725,343 | ||||||||||||||
Changes to goodwill (a) | 1,480 | 152,417 | 153,897 | |||||||||||||||||
| Foreign currency translation | 9,808 | — | 9,808 | |||||||||||||||||
| Balance at December 31, 2020 | 406,401 | 482,647 | 889,048 | |||||||||||||||||
| Changes to goodwill | — | 1,232 | 1,232 | |||||||||||||||||
| Foreign currency translation | (7,171) | — | (7,171) | |||||||||||||||||
| Balance at December 31, 2021 | $ | 399,230 | $ | 483,879 | $ | 883,109 | ||||||||||||||
(a) ChangesThe changes to goodwill in the Harsco Metals & Minerals Segment relaterelated to the acquisition of Altek. The purchase price allocation is not yet final for this acquisition.ESOL, and immaterial acquisitions in the Harsco Environmental segment. See Note 3, Acquisition.Acquisitions and Dispositions.
The Company's methodology for determining reporting unit fair value is described in Note 1, Summary of Significant Accounting Policies. Performance of the Company's 20182021 annual impairment test did not result in impairment of any of the Company's reporting units.
Intangible Assets
| December 31, 2018 | December 31, 2017 | |||||||||||||||
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
| Customer related | $ | 136,307 | $ | 99,383 | $ | 153,014 | $ | 121,385 | ||||||||
| Patents | 2,598 | 2,503 | 5,825 | 5,700 | ||||||||||||
| Technology related | 35,831 | 2,681 | 26,131 | 26,131 | ||||||||||||
| Trade names | 9,212 | 1,897 | 8,317 | 4,845 | ||||||||||||
| Other | 5,865 | 3,524 | 8,875 | 5,850 | ||||||||||||
| Total | $ | 189,813 | $ | 109,988 | $ | 202,162 | $ | 163,911 | ||||||||
66
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||||
| Customer related | $ | 104,322 | $ | 54,057 | $ | 105,222 | $ | 46,267 | ||||||||||||||||||
| Permits | 309,069 | 34,822 | 308,705 | 18,955 | ||||||||||||||||||||||
| Technology related | 39,886 | 13,415 | 40,274 | 9,654 | ||||||||||||||||||||||
| Trade names | 30,738 | 6,842 | 30,779 | 4,272 | ||||||||||||||||||||||
| Air rights | 26,139 | 1,675 | 26,139 | 1,044 | ||||||||||||||||||||||
| Patents | 179 | 138 | 192 | 139 | ||||||||||||||||||||||
| Non-compete agreement | 2,500 | 1,094 | 2,500 | 469 | ||||||||||||||||||||||
| Other | 3,407 | 1,396 | 3,335 | 1,230 | ||||||||||||||||||||||
| Total | $ | 516,240 | $ | 113,439 | $ | 517,146 | $ | 82,030 | ||||||||||||||||||
Amortization expense for intangible assets was $7.7$32.2 million,, $5.1 $30.6 million and $7.9$15.2 million for 2018, 20172021, 2020 and 2016,2019, respectively. The following table shows the estimated amortization expense for the next five fiscal years based on current intangible assets.
| (In thousands) | 2022 | 2023 | 2024 | 2025 | 2026 | |||||||||||||||||||||||||||
Estimated amortization expense (b) | $ | 31,600 | $ | 31,600 | $ | 31,100 | $ | 30,900 | $ | 28,900 | ||||||||||||||||||||||
(b) These estimated amortization expense amounts do not reflect the potential effect of future foreign currency exchange rate fluctuations.
| (In thousands) | 2019 | 2020 | 2021 | 2022 | 2023 | |||||||||||||||
Estimated amortization expense (a) | $ | 9,000 | $ | 8,750 | $ | 8,500 | $ | 8,250 | $ | 8,250 | ||||||||||
8. Debt and Credit Agreements
| (In thousands) | December 31 2021 | December 31 2020 | ||||||||||||
Senior Secured Credit Facilities (a): | ||||||||||||||
| New Term Loan with an interest rate of 2.75% at December 31, 2021 | $ | 497,500 | $ | — | ||||||||||
| Term Loan A with an interest rate of 3.50% at December 31, 2020 | — | 280,000 | ||||||||||||
| Term Loan B with an interest rate of 3.25% at December 31, 2020 | — | 218,188 | ||||||||||||
Revolving Credit Facility with an average interest rate of 2.5% and 2.8% at December 31, 2021 and 2020, respectively | 362,000 | 281,000 | ||||||||||||
| 5.75% Senior Notes due July 31, 2027 | 500,000 | 500,000 | ||||||||||||
| Other financing payable (including capital leases) in varying amounts due principally through 2026 with a weighted-average interest rate of 4.7% and 5.0% at December 31, 2021 and 2020, respectively | 28,389 | 21,344 | ||||||||||||
| Total debt obligations | 1,387,889 | 1,300,532 | ||||||||||||
| Less: deferred financing costs | (18,217) | (15,767) | ||||||||||||
| Total debt obligations, net of deferred financing costs | 1,369,672 | 1,284,765 | ||||||||||||
| Less: current maturities of long-term debt | (10,226) | (13,576) | ||||||||||||
| Long-term debt | $ | 1,359,446 | $ | 1,271,189 | ||||||||||
(a) The current portion of a $400 million revolving credit facility (the "Revolving Credit Facility") and a $550 million term loan facility (the "Term Loan Facility"). Upon closing oflong-term debt related to the Senior Secured Credit Facility, the Company amendedFacilities was $5.0 million and extended the existing Revolving Credit Facility, repaid the existing term loan A facility and redeemed, satisfied and discharged its 5.75% notes (the "Notes") in accordance$10.5 million with the indenture governing the Notes. As a result, a charge of $35.3 million was recorded during the fourth quarter of 2016 consisting principally of the cost of early extinguishment of the Notesremainder reflected as Long-term debt at December 31, 2021 and the write-off of unamortized deferred financing costs associated with the Company’s then existing financing agreements and the Notes and is reflected in the financing activities section of the Consolidated Statements of Cash Flows as a reduction2020, respectively.
The maturities of long-term debt.debt for the four years following December 31, 2022 are as follows:
| (In thousands) | ||||||||
| 2023 | $ | 17,331 | ||||||
| 2024 | 9,351 | |||||||
| 2025 | 7,560 | |||||||
| 2026 | 368,558 | |||||||
67
Senior Secured Credit Facilities
March 2021 Amendment
In December 2017,March 2021, the Company amended its Senior Secured Credit Facility in orderFacilities to, among other things, reduce the interest rate applicable to the Term Loan Facility, improve certain covenants and extend the maturity date by a year until December 2024.of the Revolving Credit Facility to March 10, 2026, and to modify aspects of its total net leverage ratio covenant. As a result of this amendment, a charge of $2.3 millionthe net debt to consolidated adjusted EBITDA ratio covenant was recorded during the fourth quarter of 2017 consisting principally of fees associated with the transactionincreased to 5.75 through December 2021 and the write-off of unamortized deferred financing coststhen decreases quarterly until reaching 4.50 in December 2022 and is reflected4.00 in the operating activities section of the Consolidated Statements of Cash Flows as part of Net income.
March 2023. In June 2018,addition the Company amendedissued the New Term Loan, as an additional tranche, under the Senior Secured Credit FacilityFacilities, in order to, among other things, reduce the interest rate applicable to thean aggregate principal amount of $500 million. The New Term Loan Facility and to increase the limit of the Revolving Credit Facility. A charge of $1.1 million was recorded during 2018 consisting principally of fees associated with the transaction and the write-off of unamortized deferred financing costs.
In October 2021, the Company amended its Senior Secured Credit Facilities to, among other things, to make certain amendments in connection with the discontinuation of LIBOR.
At December 31, 2021, the Company was in compliance with all covenants for the Senior Secured Credit Facilities. During the twelve months ended December 31, 2021, 2020 and 2019, the Company recognized $5.5 million, $1.9 million and $1.0 million, respectively, of fees and expenses related to amendments to the Senior Secured Credit Facilities in the caption Unused debt commitment, amendment fees and loss on the extinguishment of debt on the Consolidated Statements of Operations. The amount for 2021 includes a write-off of $2.7 million of previously recorded deferred financing costs. The Company capitalized fees of $7.8 million related to the March 2021 Amendment.
In addition, on February 22, 2022, the Company amended its Senior Credit Agreement. The Term Loan Facility requires scheduled quarterly payments, each equalFacilities (“Amendment No. 9 to 0.25%the Third Amended and Restated Credit Agreement”) to reset the levels of the original principal amountnet debt to consolidated adjusted EBITDA ratio covenant. As a result of this amendment, the net debt to consolidated adjusted EBITDA ratio covenant was set at 5.75 for the quarter ending March 31, 2022, and then decreases quarterly by 0.25 until reaching 4.00 for the quarter ending December 31, 2023 and thereafter. In addition, upon closing on the divestiture of the loansformer Harsco Rail Segment, the net debt to consolidated adjusted EBITDA ratio covenant will decrease by an additional 0.25, provided, however, it will not go below 4.00.
See Note 20 Subsequent Events and Item 9B Other Information for discussion of the Amendment No. 9 to the Third Amended and Restated Credit Agreement.
The Credit Agreement imposes certain restrictions including, but not limited to, restrictions as to types and amounts of debt of liens that may be incurred by the Company; limitations on increases in dividend payments; limitations on repurchases of the Company's stock and limitations on certain acquisitions by the Company.
With respect to the Senior Secured Credit Facilities, the obligations of the Company are guaranteed by substantially all of the Company’s current and future wholly-owned domestic subsidiaries (“Guarantors”). All obligations under the Term Loan Facility. These paymentsSenior Credit Facility, and the guarantees of those obligations, are reducedsecured, subject to certain exceptions, by the application of any prepayments and any remaining balance is due and payable on the maturitysubstantially all of the Term Loan Facility. The Term Loan Facility matures on December 8, 2024.Company’s assets and the assets of the Guarantors.
The Credit Agreement requires certain mandatory prepayments of the New Term Loan, Facility, subject to certain exceptions, based on net cash proceeds of certain sales or distributions of assets, as well as certain casualty and condemnation events, in some cases subject to reinvestment rights and certain other exceptions; net cash proceeds of any issuance of debt, excluded permitted debt issuances; and a percentage of excess cash flow, as defined by the Credit Agreement, during a fiscal year.
Revolving Credit Facility imposes certain restrictions including, but not limited to, restrictions as to types and amounts of debt of liens that may be incurred by
Borrowings under the Company; limitations on increases in dividend payments; limitations on repurchases of the Company's stock and limitations on certain acquisitions by the Company.
68
Summary of Senior Secured Credit Facility Borrowings: (In thousands) | December 31 2018 | December 31 2017 | ||||||
| By type: | ||||||||
| Revolving Credit Facility | $ | 62,000 | $ | 41,000 | ||||
| Term Loan Facility | 541,788 | 545,875 | ||||||
| Total | $ | 603,788 | $ | 586,875 | ||||
| By classification: | ||||||||
| Current | $ | 5,445 | $ | 5,459 | ||||
| Long-term | 598,343 | 581,416 | ||||||
| Total | $ | 603,788 | $ | 586,875 | ||||
The following table illustratesshows the amount outstanding under the Revolving Credit Facility and available credit at December 31, 2018.2021.
| December 31, 2018 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||
| (In thousands) | Facility Limit | Outstanding Balance | Outstanding Letters of Credit | Available Credit | (In thousands) | Facility Limit | Outstanding Balance | Outstanding Letters of Credit | Available Credit | |||||||||||||||||||||||||||||||||
| Revolving Credit Facility (a U.S.-based program) | $ | 500,000 | $ | 62,000 | $ | 30,352 | $ | 407,648 | ||||||||||||||||||||||||||||||||||
| Revolving Credit Facility | Revolving Credit Facility | $ | 700,000 | $ | 362,000 | $ | 29,824 | $ | 308,176 | |||||||||||||||||||||||||||||||||
Other
In 2019, the Company recognized $6.7 million of expenses in the caption Unused commitment fees, amendment fees and loss on extinguishment of debt on the Consolidated Statements of Operations, for fees and other costs related to bridge financing commitments that the Company arranged in the event that the Senior Notes were not issued prior to the acquisition of Clean Earth. The Senior Notes were issued prior to completion of the Clean Earth acquisition thus the bridge financing commitments were not utilized.
Short-term borrowings amounted to $10.1totaled $7.7 million and $8.6$7.5 million at December 31, 20182021 and 2017,2020, respectively. At December 31, 20182021 and 2017,2020, Short-term borrowings consist primarily of bank overdrafts and other third-party debt. The weighted-average interest rate for short-term borrowings at December 31, 20182021 and 20172020 was 3.0%3.3% and 4.3%3.4%, respectively.
9. Leases
The components of lease expense were as follows:
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Finance leases: | ||||||||||||||||||||
| Amortization expense | $ | 2,510 | $ | 1,523 | $ | 1,234 | ||||||||||||||
| Interest on lease liabilities | 495 | 184 | 50 | |||||||||||||||||
| Operating leases | 32,544 | 28,537 | 13,754 | |||||||||||||||||
| Variable and short-term leases | 47,780 | 40,953 | 22,201 | |||||||||||||||||
| Sublease income | (53) | (202) | (198) | |||||||||||||||||
| Total lease expense from continuing operations | $ | 83,276 | $ | 70,995 | $ | 37,041 | ||||||||||||||
Supplemental cash flow information related to leases was as follows:
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
Cash flows used by operating activities - Operating leases (a) | $ | 33,645 | $ | 28,057 | $ | 15,143 | ||||||||||||||
| Cash flows used by financing activities - Finance leases | 2,847 | 1,367 | 1,317 | |||||||||||||||||
| ROU assets obtained in exchange for lease obligations: | ||||||||||||||||||||
Operating leases (b) | $ | 42,442 | $ | 69,044 | $ | 65,525 | ||||||||||||||
| Finance leases | 11,495 | 6,220 | 2,658 | |||||||||||||||||
(a) Cash flows include cash paid for operating leases of discontinued operations.
(b) Cash flows include ROU assets of approximately $56 million that were recorded upon the acquisition of ESOL in 2020. See Note 3, Acquisitions and Dispositions, for additional information.
Supplemental balance sheet information related to leases was as follows:
| (In thousands) | 2021 | 2020 | ||||||||||||||||||
| Operating Leases (c): | ||||||||||||||||||||
| Operating lease ROU assets | $ | 101,576 | $ | 92,495 | ||||||||||||||||
| Current portion of operating lease liabilities | 25,590 | 23,117 | ||||||||||||||||||
| Operating lease liabilities | 74,571 | 67,126 | ||||||||||||||||||
| Finance Leases: | ||||||||||||||||||||
| Property, plant and equipment, net | $ | 17,185 | $ | 8,434 | ||||||||||||||||
| Current maturities of long-term debt | 3,756 | 1,683 | ||||||||||||||||||
| Long-term debt | 13,736 | 6,867 | ||||||||||||||||||
(c) The 2021 operating lease ROU assets and operating lease liabilities include a $15 million adjustment to record certain leases for ESOL. These leases have been incorrectly treated as short term leases versus operating leases since ESOL's acquisition on April 6, 2020.
69
| (In thousands) | December 31 2018 | December 31 2017 | ||||||
| Senior Secured Credit Facilities: | ||||||||
| Term Loan Facility with an interest rate of 4.8% and 4.6% at December 31, 2018 and 2017, respectively | $ | 541,788 | $ | 545,875 | ||||
| Revolving Credit Facility with an average interest rate of 4.6% and 4.2% at December 31, 2018 and 2017, respectively | 62,000 | 41,000 | ||||||
| Other financing payable (including capital leases) in varying amounts due principally through 2019 with a weighted-average interest rate of 3.9% and 5.0% at December 31, 2018 and 2017, respectively | 1,606 | 6,784 | ||||||
| Total debt obligations | 605,394 | 593,659 | ||||||
| Less: deferred financing costs | (13,243 | ) | (15,657 | ) | ||||
| Total debt obligations, net of deferred financing costs | 592,151 | 578,002 | ||||||
| Less: current maturities of long-term debt | (6,489 | ) | (11,208 | ) | ||||
| Long-term debt | $ | 585,662 | $ | 566,794 | ||||
Supplemental additional information related to leases was as follows:
| 2021 | 2020 | |||||||||||||
| Other information: | ||||||||||||||
| Weighted average remaining lease term - Operating leases (in years) | 7.14 | 8.22 | ||||||||||||
| Weighted average remaining lease term - Finance leases (in years) | 5.88 | 8.20 | ||||||||||||
| Weighted average discount rate - Operating leases | 5.9 | % | 6.1 | % | ||||||||||
| Weighted average discount rate - Finance leases | 4.6 | % | 5.1 | % | ||||||||||
Maturities of long-term debtlease liabilities were as follows:
| (In thousands) | Operating Leases | Finance Leases | ||||||||||||
| Year Ending December 31: | ||||||||||||||
| 2022 | $ | 30,347 | $ | 4,483 | ||||||||||
| 2023 | 24,959 | 4,311 | ||||||||||||
| 2024 | 18,612 | 3,901 | ||||||||||||
| 2025 | 12,923 | 2,834 | ||||||||||||
| 2026 | 8,641 | 1,733 | ||||||||||||
| After 2026 | 31,890 | 3,078 | ||||||||||||
| Total lease payments | 127,372 | 20,340 | ||||||||||||
| Less: Imputed interest | (27,211) | (2,848) | ||||||||||||
| Total lease liabilities | $ | 100,161 | $ | 17,492 | ||||||||||
0The Company's leases, excluding short-term leases, have remaining terms of less than one year to 29years, some of which include options to extend for the fourup to 10 years, followingand some of which include options to terminate within one year. As of December 31, 2019 are as follows:
| (In thousands) | ||||
| 2020 | $ | 5,953 | ||
| 2021 | 67,507 | |||
| 2022 | 5,445 | |||
| 2023 | 5,445 | |||
| (In thousands) | ||||
| 2019 | $ | 13,985 | ||
| 2020 | 12,204 | |||
| 2021 | 9,448 | |||
| 2022 | 7,706 | |||
| 2023 | 6,201 | |||
| After 2023 | 28,442 | |||
10. Employee Benefit Plans
Pension Benefits
The Company has defined benefit pension plans covering a substantialcertain number of employees. The defined benefits for salaried employees generally are based on years of service and the employee's level of compensation during specified periods of employment. Defined benefit pension plans covering hourly employees generally provide benefits of stated amounts for each year of service. The multiemployer pension plans ("MEPPs"),MEPPs in which the Company participates provide benefits to certain unionized employees. The Company's funding policy for qualified plans is consistent with statutory regulations and customarily equals the amount deducted for income tax purposes. Periodic voluntary contributions are made, as recommended, by the Company's Pension Committee.
For most U.S. defined benefit pension plans and a majority of international defined benefit pension plans, accrued service is no longer granted. In place of these plans, the Company has established defined contribution plans providing for the Company to contribute a specified matching amount for participating employees' contributions to the plan. For U.S. employees, this match is made on employee contributions up to 4% of eligible compensation. Additionally, the Company may provide a discretionary contribution for eligible employees. There have been no discretionary contributions provided for the years 2018, 20172021, 2020 and 2016.2019. For non-U.S. employees, this match is up to 6% of eligible compensation with an additional 2% going towards insurance and administrative costs.
NPPC from continuing operations for U.S. and international plans for 2018, 20172021, 2020 and 20162019 is as follows:
| U.S. Plans | International Plans | |||||||||||||||||||||||
| (In thousands) | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||||||||||||||||||
| Defined benefit pension plans: | ||||||||||||||||||||||||
| Service cost | $ | 42 | $ | 43 | $ | 102 | $ | 1,669 | $ | 1,724 | $ | 1,585 | ||||||||||||
| Interest cost | 9,562 | 9,878 | 10,165 | 21,589 | 21,459 | 26,822 | ||||||||||||||||||
| Expected return on plan assets | (12,068 | ) | (10,485 | ) | (10,721 | ) | (42,685 | ) | (40,469 | ) | (42,979 | ) | ||||||||||||
| Recognized prior service costs | 1 | 33 | 63 | (140 | ) | 186 | 189 | |||||||||||||||||
| Recognized losses | 5,207 | 5,701 | 5,493 | 14,807 | 16,283 | 12,002 | ||||||||||||||||||
| Settlement/curtailment loss (gain) | 285 | — | 276 | (36 | ) | (20 | ) | 79 | ||||||||||||||||
| Defined benefit pension plan cost (income) | 3,029 | 5,170 | 5,378 | (4,796 | ) | (837 | ) | (2,302 | ) | |||||||||||||||
| Multiemployer pension plans | 686 | 650 | 636 | 1,313 | 1,306 | 1,368 | ||||||||||||||||||
| Defined contribution plans | 5,034 | 4,239 | 3,833 | 5,608 | 5,905 | 5,807 | ||||||||||||||||||
| Net periodic pension cost | $ | 8,749 | $ | 10,059 | $ | 9,847 | $ | 2,125 | $ | 6,374 | $ | 4,873 | ||||||||||||
70
| U.S. Plans | International Plans | |||||||||||||||||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
| Net Periodic Pension Cost (Income): | ||||||||||||||||||||||||||||||||||||||
| Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||
| Service cost | $ | — | $ | — | $ | 39 | $ | 1,805 | $ | 1,642 | $ | 1,308 | ||||||||||||||||||||||||||
| Interest cost | 4,813 | 7,381 | 10,551 | 12,652 | 17,599 | 22,148 | ||||||||||||||||||||||||||||||||
| Expected return on plan assets | (12,199) | (11,368) | (10,297) | (45,018) | (41,013) | (37,218) | ||||||||||||||||||||||||||||||||
| Recognized prior service costs | — | — | — | 582 | 512 | 326 | ||||||||||||||||||||||||||||||||
| Recognized losses | 5,538 | 5,100 | 5,585 | 18,119 | 14,723 | 14,345 | ||||||||||||||||||||||||||||||||
| Settlement/curtailment loss (gain) | — | — | 129 | (6) | 18 | 19 | ||||||||||||||||||||||||||||||||
| Defined benefit pension plan cost (income) | (1,848) | 1,113 | 6,007 | (11,866) | (6,519) | 928 | ||||||||||||||||||||||||||||||||
| Multiemployer pension plans | 640 | 620 | 727 | 1,035 | 969 | 1,167 | ||||||||||||||||||||||||||||||||
| Defined contribution plans | 5,660 | 4,769 | 2,523 | 4,196 | 3,994 | 5,349 | ||||||||||||||||||||||||||||||||
| Net periodic pension cost (income) | $ | 4,452 | $ | 6,502 | $ | 9,257 | $ | (6,635) | $ | (1,556) | $ | 7,444 | ||||||||||||||||||||||||||
The change in the financial status of the defined benefit pension plans and amounts recognized on the Consolidated Balance Sheets at December 31, 20182021 and 20172020 are as follows:
| U.S. Plans | International Plans | |||||||||||||||
| (In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Change in benefit obligation: | ||||||||||||||||
| Benefit obligation at beginning of year | $ | 314,861 | $ | 305,652 | $ | 1,015,586 | $ | 952,360 | ||||||||
| Service cost | 42 | 43 | 1,669 | 1,724 | ||||||||||||
| Interest cost | 9,562 | 9,878 | 21,589 | 21,459 | ||||||||||||
| Plan participants' contributions | — | — | 49 | 61 | ||||||||||||
| Amendments | — | — | 11,238 | (4,459 | ) | |||||||||||
| Actuarial (gain) loss | (21,474 | ) | 14,459 | (78,658 | ) | (3,613 | ) | |||||||||
| Settlements/curtailments | — | — | (313 | ) | (3,362 | ) | ||||||||||
| Benefits paid | (16,964 | ) | (15,171 | ) | (37,721 | ) | (40,379 | ) | ||||||||
| Effect of foreign currency | — | — | (58,760 | ) | 91,795 | |||||||||||
| Benefit obligation at end of year | $ | 286,027 | $ | 314,861 | $ | 874,679 | $ | 1,015,586 | ||||||||
| U.S. Plans | International Plans | |||||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Change in benefit obligation: | ||||||||||||||||||||||||||
| Benefit obligation at beginning of year | $ | 296,660 | $ | 294,693 | $ | 1,119,552 | $ | 984,665 | ||||||||||||||||||
| Service cost | — | — | 1,805 | 1,642 | ||||||||||||||||||||||
| Interest cost | 4,813 | 7,381 | 12,652 | 17,599 | ||||||||||||||||||||||
| Plan participants' contributions | — | — | 15 | 18 | ||||||||||||||||||||||
| Amendments | — | — | — | 1,088 | ||||||||||||||||||||||
| Actuarial (gain) loss | (8,063) | 25,212 | (58,567) | 129,410 | ||||||||||||||||||||||
| Settlements/curtailments | — | — | (269) | (256) | ||||||||||||||||||||||
| Benefits paid | (16,403) | (17,675) | (39,831) | (43,952) | ||||||||||||||||||||||
| Effect of foreign currency | — | — | (13,159) | 29,379 | ||||||||||||||||||||||
| Acquisitions/divestitures | — | (12,951) | — | (41) | ||||||||||||||||||||||
| Benefit obligation at end of year | $ | 277,007 | $ | 296,660 | $ | 1,022,198 | $ | 1,119,552 | ||||||||||||||||||
| Change in plan assets: | ||||||||||||||||||||||||||
| Fair value of plan assets at beginning of year | $ | 226,125 | $ | 226,268 | $ | 957,177 | $ | 860,321 | ||||||||||||||||||
| Actual return on plan assets | 19,005 | 24,975 | 40,382 | 95,132 | ||||||||||||||||||||||
| Employer contributions | 4,219 | 3,528 | 25,077 | 21,955 | ||||||||||||||||||||||
| Plan participants' contributions | — | — | 15 | 18 | ||||||||||||||||||||||
| Settlements/curtailments | — | — | (269) | (256) | ||||||||||||||||||||||
| Benefits paid | (16,402) | (17,675) | (39,220) | (43,527) | ||||||||||||||||||||||
| Effect of foreign currency | — | — | (9,910) | 23,534 | ||||||||||||||||||||||
| Acquisitions/divestitures | — | (10,971) | — | — | ||||||||||||||||||||||
| Fair value of plan assets at end of year | $ | 232,947 | $ | 226,125 | $ | 973,252 | $ | 957,177 | ||||||||||||||||||
| Funded status at end of year | $ | (44,060) | $ | (70,535) | $ | (48,946) | $ | (162,375) | ||||||||||||||||||
Significant items impacting actuarial gains and losses for 2021 for U.S. plans included: improvement in the funded position due to the actual return on the fair value of plan assets since the prior measurement date being greater than assumed, and an increase in the discount rate used to measure the benefit obligation compared with the prior year; partially offset by a decrease in the funded position due to updates in the mortality improvement projection assumption.
71
| U.S. Plans | International Plans | |||||||||||||||
| (In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Change in plan assets: | ||||||||||||||||
| Fair value of plan assets at beginning of year | $ | 229,941 | $ | 205,271 | $ | 842,717 | $ | 732,743 | ||||||||
| Actual return on plan assets | (17,883 | ) | 33,942 | (30,004 | ) | 67,136 | ||||||||||
| Employer contributions | 10,294 | 5,899 | 18,415 | 18,187 | ||||||||||||
| Plan participants' contributions | — | — | 49 | 61 | ||||||||||||
| Settlements/curtailments | — | — | (313 | ) | (3,241 | ) | ||||||||||
| Benefits paid | (16,964 | ) | (15,171 | ) | (37,570 | ) | (39,800 | ) | ||||||||
| Effect of foreign currency | — | — | (48,756 | ) | 67,631 | |||||||||||
| Fair value of plan assets at end of year | $ | 205,388 | $ | 229,941 | $ | 744,538 | $ | 842,717 | ||||||||
| Funded status at end of year | $ | (80,639 | ) | $ | (84,920 | ) | $ | (130,141 | ) | $ | (172,869 | ) | ||||
The significant item impacting actuarial gains and losses for 2021 for international plans, principally the U.K. plan, was improvement in the funded position due to an increase in the discount rate used to measure the benefit obligation compared with the prior year.
Amounts recognized on the Consolidated Balance Sheets for defined benefit pension plans consist of the following at December 31, 20182021 and 2017:
| U.S. Plans | International Plans | |||||||||||||||
| December 31 | December 31 | |||||||||||||||
| (In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Noncurrent assets | $ | 1,953 | $ | 1,860 | $ | 2,379 | $ | 1,820 | ||||||||
| Current liabilities | 1,954 | 2,237 | 643 | 625 | ||||||||||||
| Noncurrent liabilities | 80,638 | 84,543 | 131,876 | 174,064 | ||||||||||||
| Accumulated other comprehensive loss before tax | 149,326 | 146,341 | 391,849 | 427,127 | ||||||||||||
| U.S. Plans | International Plans | |||||||||||||||||||||||||
| December 31 | December 31 | |||||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Noncurrent assets | $ | — | $ | — | $ | 2,046 | $ | — | ||||||||||||||||||
| Current liabilities | 1,999 | 1,970 | 967 | 907 | ||||||||||||||||||||||
| Noncurrent liabilities | 42,061 | 68,565 | 50,025 | 161,468 | ||||||||||||||||||||||
| AOCI | 114,874 | 135,281 | 410,114 | 487,682 | ||||||||||||||||||||||
Amounts recognized in Accumulated other comprehensive loss, before tax,AOCI for defined benefit pension plans consist of the following at December 31, 20182021 and 2017:2020:
| U.S. Plans | International Plans | |||||||||||||||
| (In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Net actuarial loss | $ | 149,326 | $ | 146,340 | $ | 384,666 | $ | 430,377 | ||||||||
| Prior service cost | — | 1 | 7,183 | (3,250 | ) | |||||||||||
| Total | $ | 149,326 | $ | 146,341 | $ | 391,849 | $ | 427,127 | ||||||||
| U.S. Plans | International Plans | |||||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Net actuarial loss | $ | 114,874 | $ | 135,281 | $ | 400,497 | $ | 477,238 | ||||||||||||||||||
| Prior service cost | — | — | 9,617 | 10,444 | ||||||||||||||||||||||
| Total | $ | 114,874 | $ | 135,281 | $ | 410,114 | $ | 487,682 | ||||||||||||||||||
| (In thousands) | U.S. Plans | International Plans | ||||||
| Net actuarial loss | $ | 5,621 | $ | 14,480 | ||||
| Prior service cost | — | 324 | ||||||
| Total | $ | 5,621 | $ | 14,804 | ||||
The Company's estimate of expected contributions to be paid in 20192022 for the U.S. and international defined benefit plans are $9.1total $2.0 million and $20.4$24.7 million,, respectively.
Future Benefit Payments
| (In millions) | 2022 | 2023 | 2024 | 2025 | 2026 | 2026-2030 | ||||||||||||||||||||||||||||||||
| U.S. Plans | $ | 27.2 | $ | 16.7 | $ | 16.6 | $ | 16.5 | $ | 16.4 | $ | 78.7 | ||||||||||||||||||||||||||
| International Plans | 40.9 | 41.9 | 43.1 | 44.5 | 45.9 | 245.3 | ||||||||||||||||||||||||||||||||
| (In millions) | 2019 | 2020 | 2021 | 2022 | 2023 | 2024-2028 | ||||||||||||||||||
| U.S. Plans | $ | 20.0 | $ | 19.5 | $ | 19.3 | $ | 19.4 | $ | 19.3 | $ | 94.1 | ||||||||||||
| International Plans | 38.5 | 39.4 | 41.0 | 41.4 | 42.5 | 228.2 | ||||||||||||||||||
Net Periodic Pension Cost and Defined Benefit Pension Obligation Assumptions
The weighted-average actuarial assumptions used to determine the defined benefit pension plan NPPC for 2018, 20172021, 2020 and 20162019 were as follows:
U.S. Plans December 31 | International Plans December 31 | Global Weighted-Average December 31 | |||||||||||||||||||||||||
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||
| Discount rates | 3.5 | % | 4.0 | % | 4.2 | % | 2.6 | % | 2.8 | % | 3.8 | % | 2.8 | % | 3.1 | % | 3.9 | % | |||||||||
| Expected long-term rates of return on plan assets | 7.3 | % | 7.3 | % | 7.3 | % | 5.6 | % | 5.9 | % | 6.5 | % | 6.0 | % | 6.2 | % | 6.7 | % | |||||||||
| U.S. Plans December 31 | International Plans December 31 | Global Weighted-Average December 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rates | 2.4 | % | 3.2 | % | 4.2 | % | 1.4 | % | 2.1 | % | 2.9 | % | 1.6 | % | 2.4 | % | 3.2 | % | ||||||||||||||||||||||||||||||||||||||
| Expected long-term rates of return on plan assets | 6.8 | % | 7.0 | % | 7.3 | % | 4.7 | % | 5.2 | % | 5.5 | % | 5.1 | % | 5.6 | % | 5.9 | % | ||||||||||||||||||||||||||||||||||||||
The expected long-term rates of return on defined benefit pension plan assets for the 20192022 NPPC are 7.3%6.3% for the U.S. plans and 5.5%4.4% for the international plans. The expected global long-term rate of return on assets for 20192022 is 5.9%4.7%.
The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at
December 31, 20182021 and 20172020 were as follows:
| U.S. Plans | International Plans | Global Weighted-Average | ||||||||||||||||
| December 31 | December 31 | December 31 | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Discount rates | 4.2 | % | 3.5 | % | 2.9 | % | 2.6 | % | 3.2 | % | 2.8 | % | ||||||
| U.S. Plans | International Plans | Global Weighted-Average | ||||||||||||||||||||||||||||||||||||
| December 31 | December 31 | December 31 | ||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| Discount rates | 2.7 | % | 2.4 | % | 1.9 | % | 1.4 | % | 2.1 | % | 1.6 | % | ||||||||||||||||||||||||||
Since accrued service is no longer granted to the U.S. defined benefit plans and the majority of the international defined benefit pension plans, the rate of compensation increase did not have a significant impact on the defined benefit pension obligation at December 31, 20182021 and 20172020 or the defined benefit pension plan NPPC for the years ended 2018, 20172021, 2020 and 2016.2019.
The U.S. discount rate was determined using a yield curve that was produced from a universe containing approximately 1,100 U.S. dollar-denominated, AA-graded corporate bonds, all of which were noncallable (or callable with make-whole provisions) and excluding the 10% of the bonds with the highest deviation from the expected yield and the 10% with the lowest deviation from the expected yield within each duration group. The discount rate was then developed as the level-equivalent rate that would produce the same present value as that using spot rates to discount the projected benefit payments. For international
72
plans, the discount rate is aligned to corporate bond yields in the local markets, normally AA-rated corporations. The process and selection seek to approximate the cash inflows with the timing and amounts of the expected benefit payments.
Accumulated Benefit Obligation
The accumulated benefit obligation for all defined benefit pension plans at December 31, 20182021 and 20172020 was as follows:
| U.S. Plans | International Plans | |||||||||||||||||||||||||
| December 31 | December 31 | |||||||||||||||||||||||||
| (In millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Accumulated benefit obligation | $ | 277.0 | $ | 296.7 | $ | 1,016.1 | $ | 1,113.4 | ||||||||||||||||||
| U.S. Plans | International Plans | |||||||||||||||
| December 31 | December 31 | |||||||||||||||
| (In millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Accumulated benefit obligation | $ | 286.0 | $ | 314.9 | $ | 869.4 | $ | 1,010.6 | ||||||||
Defined Benefit Pension Plans with Accumulated Benefit Obligation in Excess of Plan Assets
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for defined benefit pension plans with accumulated benefit obligations in excess of plan assets at December 31, 20182021 and 20172020 were as follows:
| U.S. Plans | International Plans | |||||||||||||||||||||||||
| December 31 | December 31 | |||||||||||||||||||||||||
| (In millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Projected benefit obligation | $ | 277.0 | $ | 296.7 | $ | 988.6 | $ | 1,115.7 | ||||||||||||||||||
| Accumulated benefit obligation | 277.0 | 296.7 | 984.7 | 1,109.8 | ||||||||||||||||||||||
| Fair value of plan assets | 232.9 | 226.1 | 939.3 | 953.5 | ||||||||||||||||||||||
| U.S. Plans | International Plans | |||||||||||||||
| December 31 | December 31 | |||||||||||||||
| (In millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Projected benefit obligation | $ | 279.2 | $ | 306.0 | $ | 831.7 | $ | 986.6 | ||||||||
| Accumulated benefit obligation | 279.2 | 306.0 | 828.9 | 981.9 | ||||||||||||
| Fair value of plan assets | 196.6 | 219.2 | 701.4 | 812.0 | ||||||||||||
The asset allocations attributable to the Company's U.S. defined benefit pension plans at December 31, 20182021 and 2017,2020, and the long-term target allocation of plan assets, by asset category, are as follows:
| Target Long-Term Allocation | Percentage of Plan Assets December 31 | |||||||||||||||||||
| U.S. Plans Asset Category | 2021 | 2020 | ||||||||||||||||||
| Domestic equity securities | 18%-28% | 22.8 | % | 30.8 | % | |||||||||||||||
| International equity securities | 17%-27% | 22.5 | % | 26.5 | % | |||||||||||||||
| Fixed income securities | 41%-51% | 45.9 | % | 33.4 | % | |||||||||||||||
| Cash and cash equivalents | Less than 5% | — | % | 0.7 | % | |||||||||||||||
Other (a) | 4%-14% | 8.8 | % | 8.6 | % | |||||||||||||||
Target Long-Term Allocation | Percentage of Plan Assets December 31 | |||||||
| U.S. Plans Asset Category | 2018 | 2017 | ||||||
| Domestic equity securities | 27%-37% | 30.6 | % | 38.6 | % | |||
| International equity securities | 20%-30% | 22.0 | % | 24.5 | % | |||
| Fixed income securities | 35%-45% | 42.9 | % | 30.9 | % | |||
| Cash and cash equivalents | Less than 5% | 0.7 | % | 1.0 | % | |||
Other (a) | 0%-10% | 3.8 | % | 5.0 | % | |||
Defined benefit pension plan assets are allocated among various categories of equities, fixed income securities and cash and cash equivalents with professional investment managers whose performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts an asset/liability modeling study and accordingly adjusts investments among and within asset categories to ensure the long-term investment strategy is aligned with the profile of benefit obligations.
The Company reviews the long-term expected return on asset assumption on a periodic basis taking considering a variety of factors including the historical investment returns achieved over a long-term period, the targeted allocation of plan assets and future expectations based on a model of asset returns for an actively managed portfolio. The model simulates 1,000 different capital market results over 20 years. For both 2019 and 2018, theyears. The expected return-on-asset assumption for U.S. defined benefit pension plans was 7.3%.for 2022 and 2021 are 6.3% and 6.8%, respectively.
The U.S. defined benefit pension plans' assets include 450,000310,000 shares at December 31, 2021 and 330,000 shares at December 31, 2020 of the Company's common stock, at both
The asset allocations attributable to the Company's international defined benefit pension plans at December 31, 20182021 and 20172020 and the long-term target allocation of plan assets, by asset category, are as follows:
| International Plans Asset Category | Target Long-Term Allocation | Percentage of Plan Assets December 31 | |||||||
| 2018 | 2017 | ||||||||
| Equity securities | 29.0 | % | 29.2 | % | 31.5 | % | |||
| Fixed income securities | 50.0 | % | 50.7 | % | 44.6 | % | |||
| Cash and cash equivalents | — | 0.3 | % | 0.3 | % | ||||
Other (b) | 21.0 | % | 19.8 | % | 23.6 | % | |||
| International Plans Asset Category | Target Long-Term Allocation | Percentage of Plan Assets December 31 | ||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||
| Equity securities | 26.5 | % | 27.9 | % | 32.0 | % | ||||||||||||||
| Fixed income securities | 65.5 | % | 63.6 | % | 49.5 | % | ||||||||||||||
| Cash and cash equivalents | — | 0.7 | % | 0.2 | % | |||||||||||||||
Other (b) | 8.0 | % | 7.8 | % | 18.3 | % | ||||||||||||||
(b) Investments within this caption include diversified growth funds and real estate funds.
73
International defined benefit pension plan assets at December 31, 20182021 in the U.K. defined benefit pension plan amounted tototaled approximately 94%96% of the international defined benefit pension plan assets. The U.K. plan assets are allocated among various categories of equities, fixed income securities and cash and cash equivalents with professional investment managers whose performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts asset/liability modeling studies and accordingly adjusts investment amounts within asset categories to ensure the long-term investment strategy is aligned with the profile of benefit obligations.
For the international long-term rate of return assumption, the Company considered the current level of expected returns in risk-free investments (primarily government bonds);, the historical level of the risk premium associated with other asset classes in which the portfolio is invested;invested, and the expectations for future returns of each asset class and plan expenses. The expected return for each asset class wasis then weighted based on the target asset allocation to develop the expected long-term rate of return on assets. For both 2019 and 2018, theThe expected return on asset assumption for the U.K. defined benefit pension plan is 5.5%.for 2022 and 2021 are 4.3% and 4.7%, respectively. The remaining international defined benefit pension plans, with plan assets representing approximately 6%4% of the international defined benefit pension plan assets, are under the guidance of professional investment managers and have similar investment objectives.
| (In thousands) | Total | Level 1 | Level 2 | |||||||||
| Domestic equities: | ||||||||||||
| Common stocks | $ | 8,937 | $ | 8,937 | $ | — | ||||||
| Mutual funds—equities | 54,002 | 54,002 | — | |||||||||
| International equities: | ||||||||||||
| Mutual funds—equities | 45,195 | 45,195 | — | |||||||||
| Fixed income investments: | ||||||||||||
| Mutual funds—bonds | 88,107 | 88,107 | — | |||||||||
| Other—mutual funds | 7,703 | 7,703 | — | |||||||||
| Cash and money market accounts | 1,444 | 1,444 | — | |||||||||
| Total | $ | 205,388 | $ | 205,388 | $ | — | ||||||
The fair values of the Company's U.S. defined benefit pension plans' assets at December 31, 20172021 by asset class are as follows:
| (In thousands) | Total | Level 1 | Investments Valued at Net Asset Value (c) | |||||||||||||||||||||||
| Domestic equities: | ||||||||||||||||||||||||||
| Common stocks | $ | 5,180 | $ | 5,180 | $ | — | ||||||||||||||||||||
| Mutual funds—equities | 48,411 | 48,411 | — | |||||||||||||||||||||||
| International equities: | ||||||||||||||||||||||||||
| Mutual funds—equities | 50,783 | 50,783 | — | |||||||||||||||||||||||
| Fixed income investments: | ||||||||||||||||||||||||||
| Mutual funds—bonds | 105,114 | 105,114 | — | |||||||||||||||||||||||
| Other—mutual funds | 9,371 | 9,371 | — | |||||||||||||||||||||||
| Cash and money market accounts | 1,624 | 1,624 | — | |||||||||||||||||||||||
| Other—partnerships/joint ventures | 12,464 | — | 12,464 | |||||||||||||||||||||||
| Total | $ | 232,947 | $ | 220,483 | $ | 12,464 | ||||||||||||||||||||
| (In thousands) | Total | Level 1 | Level 2 | |||||||||
| Domestic equities: | ||||||||||||
| Common stocks | $ | 28,200 | $ | 28,200 | $ | — | ||||||
| Mutual funds—equities | 60,785 | 11,062 | 49,723 | |||||||||
| International equities: | ||||||||||||
| Common stocks | 1,429 | 1,429 | — | |||||||||
| Mutual funds—equities | 54,879 | 54,879 | — | |||||||||
| Fixed income investments: | ||||||||||||
| U.S. Treasuries and collateralized securities | 18,407 | — | 18,407 | |||||||||
| Corporate bonds and notes | 10,878 | 10,878 | — | |||||||||
| Mutual funds—bonds | 41,745 | 12,184 | 29,561 | |||||||||
| Other—mutual funds | 11,336 | 11,336 | — | |||||||||
| Cash and money market accounts | 2,282 | 2,282 | — | |||||||||
| Total | $ | 229,941 | $ | 132,250 | $ | 97,691 | ||||||
The fair values of the Company's U.S. defined benefit pension plans' assets at December 31, 2020 by asset class are as follows:
| (In thousands) | Total | Level 1 | Investments Valued at Net Asset Value | |||||||||||||||||||||||
| Domestic equities: | ||||||||||||||||||||||||||
| Common stocks | $ | 5,934 | $ | 5,934 | $ | — | ||||||||||||||||||||
| Mutual funds—equities | 63,651 | 63,651 | — | |||||||||||||||||||||||
| International equities: | ||||||||||||||||||||||||||
| Mutual funds—equities | 59,933 | 59,933 | — | |||||||||||||||||||||||
| Fixed income investments: | ||||||||||||||||||||||||||
| Mutual funds—bonds | 75,441 | 75,441 | — | |||||||||||||||||||||||
| Other—mutual funds | 8,944 | 8,944 | — | |||||||||||||||||||||||
| Cash and money market accounts | 1,691 | 1,691 | — | |||||||||||||||||||||||
| Other - partnerships/joint ventures | 10,531 | — | 10,531 | |||||||||||||||||||||||
| Total | $ | 226,125 | $ | 215,594 | $ | 10,531 | ||||||||||||||||||||
74
The fair values of the Company's international defined benefit pension plans' assets at December 31, 20182021 by asset class are as follows:
| (In thousands) | Total | Level 1 | Level 2 | |||||||||
| Equity securities: | ||||||||||||
| Mutual funds—equities | $ | 217,321 | $ | — | $ | 217,321 | ||||||
| Fixed income investments: | ||||||||||||
| Mutual funds—bonds | 372,094 | — | 372,094 | |||||||||
| Insurance contracts | 5,620 | — | 5,620 | |||||||||
| Other: | ||||||||||||
| Other mutual funds | 147,313 | — | 147,313 | |||||||||
| Cash and money market accounts | 2,190 | 2,190 | — | |||||||||
| Total | $ | 744,538 | $ | 2,190 | $ | 742,348 | ||||||
| (In thousands) | Total | Level 1 | Level 2 | |||||||||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||||
| Mutual funds—equities | $ | 271,811 | $ | — | $ | 271,811 | ||||||||||||||||||||||||||
| Fixed income investments: | ||||||||||||||||||||||||||||||||
| Mutual funds—bonds | 613,243 | — | 613,243 | |||||||||||||||||||||||||||||
| Insurance contracts | 5,684 | — | 5,684 | |||||||||||||||||||||||||||||
| Other: | ||||||||||||||||||||||||||||||||
| Other mutual funds | 75,651 | — | 75,651 | |||||||||||||||||||||||||||||
| Cash and money market accounts | 6,863 | 6,863 | — | |||||||||||||||||||||||||||||
| Total | $ | 973,252 | $ | 6,863 | $ | 966,389 | ||||||||||||||||||||||||||
The fair values of the Company's international defined benefit pension plans' assets at December 31, 20172020 by asset class are as follows:
| (In thousands) | Total | Level 1 | Level 2 | |||||||||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||||
| Mutual funds—equities | $ | 306,959 | $ | — | $ | 306,959 | ||||||||||||||||||||||||||
| Fixed income investments: | ||||||||||||||||||||||||||||||||
| Mutual funds—bonds | 467,285 | — | 467,285 | |||||||||||||||||||||||||||||
| Insurance contracts | 6,282 | — | 6,282 | |||||||||||||||||||||||||||||
| Other: | ||||||||||||||||||||||||||||||||
| Other mutual funds | 174,921 | — | 174,921 | |||||||||||||||||||||||||||||
| Cash and money market accounts | 1,730 | 1,730 | — | |||||||||||||||||||||||||||||
| Total | $ | 957,177 | $ | 1,730 | $ | 955,447 | ||||||||||||||||||||||||||
| (In thousands) | Total | Level 1 | Level 2 | |||||||||
| Equity securities: | ||||||||||||
| Mutual funds—equities | $ | 265,989 | $ | — | $ | 265,989 | ||||||
| Fixed income investments: | ||||||||||||
| Mutual funds—bonds | 369,291 | — | 369,291 | |||||||||
| Insurance contracts | 6,189 | 6,189 | ||||||||||
| Other: | ||||||||||||
| Other mutual funds | 198,856 | — | 198,856 | |||||||||
| Cash and money market accounts | 2,392 | 2,392 | — | |||||||||
| Total | $ | 842,717 | $ | 2,392 | $ | 840,325 | ||||||
Following is a description of the valuation methodologies used for the defined benefit pension plans' investments measured at fair value:
•Level 1 Fair Value Measurements—Investments in interest-bearing cash are stated at cost, which approximates fair value. The fair values of money market accounts and certain mutual funds are based on quoted net asset values of the shares held by the plan at year-end. The fair values of domestic and international stocks and corporate bonds, notes and convertible debentures are valued at the closing price reported in the active market on which the individual securities are traded.
•Level 2 Fair Value Measurements—The fair values of investments in mutual funds for which quoted net asset values in an active market are not available are valued by the investment advisor based on the current market values of the underlying assets of the mutual fund based on information reported by the investment consistent with audited financial statements of the mutual fund. Further information concerning these mutual funds may be obtained from their separate audited financial statements. Investments in U.S. Treasury notes and collateralized securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings.
Multiemployer Pension Plans
The Company, through the Harsco Metals & MineralsEnvironmental Segment, contributes to several MEPPs under the terms of collective-bargaining agreements that cover union-represented employees, many of whom are temporary in nature. The Company's total contributions to MEPPs were $2.0$1.7 million, $2.0$1.6 million and $2.0$1.9 million for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively.
11. Income Taxes
Current income tax expense or benefit represents the amounts expected to be reported on the Company's income tax returns, and deferred income tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted income tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered more likely than not to be realized.
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Income (loss) from continuing operations before income taxes and equity income as reported on the Consolidated Statements of Operations consists of the following:
| (In thousands) | 2018 | 2017 | 2016 | |||||||||
| U.S. | $ | 69,125 | $ | 5,694 | $ | (99,939 | ) | |||||
| International | 88,129 | 89,757 | 20,468 | |||||||||
| Total income (loss) from continuing operations before income taxes and equity income | $ | 157,254 | $ | 95,451 | $ | (79,471 | ) | |||||
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| U.S. | $ | (34,462) | $ | (87,315) | $ | (38,969) | ||||||||||||||
| International | 71,968 | 33,095 | 70,034 | |||||||||||||||||
| Total income (loss) from continuing operations before income taxes and equity income | $ | 37,506 | $ | (54,220) | $ | 31,065 | ||||||||||||||
Income tax expense (benefit) as reported on the Consolidated Statements of Operations consists of the following:
| (In thousands) | 2018 | 2017 | 2016 | |||||||||
| Income tax expense (benefit): | ||||||||||||
| Currently payable: | ||||||||||||
| U.S. federal | $ | 281 | $ | 4,107 | $ | (4,088 | ) | |||||
| U.S. state | 1,127 | 372 | 365 | |||||||||
| International | 18,014 | 21,975 | 18,014 | |||||||||
| Total income taxes currently payable | 19,422 | 26,454 | 14,291 | |||||||||
| Deferred U.S. federal | 7,164 | 46,470 | (8,195 | ) | ||||||||
| Deferred U.S. state | (11,045 | ) | 1,142 | 2,238 | ||||||||
| Deferred international | (2,642 | ) | 9,737 | (1,697 | ) | |||||||
| Total income tax expense | $ | 12,899 | $ | 83,803 | $ | 6,637 | ||||||
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| Income tax expense (benefit): | ||||||||||||||||||||
| Currently payable: | ||||||||||||||||||||
| U.S. federal | $ | — | $ | (12,116) | $ | 902 | ||||||||||||||
| U.S. state | 507 | 468 | 220 | |||||||||||||||||
| International | 22,295 | 16,518 | 21,132 | |||||||||||||||||
| Total income taxes currently payable | 22,802 | 4,870 | 22,254 | |||||||||||||||||
| Deferred U.S. federal | (4,594) | (10,558) | (9,367) | |||||||||||||||||
| Deferred U.S. state | (18) | (3,078) | (2,575) | |||||||||||||||||
| Deferred international | (9,101) | 93 | 2,416 | |||||||||||||||||
| Total income tax expense (benefit) from continuing operations | $ | 9,089 | $ | (8,673) | $ | 12,728 | ||||||||||||||
Cash payments for income taxes were $26.8$21.7 million,, $24.9 $34.9 million and $14.6$115.6 million for 2018, 20172021, 2020 and 2016,2019, respectively. The decrease in cash payments for 2021 is principally due to payments associated with the gain on the sale of IKG in 2020 and the gain on the sale of AXC and PK in 2019 not recurring in 2021.
A reconciliation of the normal expected statutory U.S. federal income tax expense (benefit) to the actual Income tax expense (benefit) from continuing operations as reported on the Consolidated Statements of Operations is as follows:
| (In thousands) | 2021 | 2020 | 2019 | |||||||||||||||||
| U.S. federal income tax expense (benefit), at statutory tax rate of 21% | $ | 7,877 | $ | (11,386) | $ | 6,523 | ||||||||||||||
| U.S. state income taxes, net of federal income tax benefit | (310) | (2,015) | (1,290) | |||||||||||||||||
| U.S. other domestic deductions and credits | (415) | (1,312) | (596) | |||||||||||||||||
| Difference in effective tax rates on international earnings and remittances | 4,488 | 7,872 | 7,536 | |||||||||||||||||
| Uncertain tax position contingencies and settlements | 783 | 289 | 310 | |||||||||||||||||
| Changes in realization on beginning of the year deferred tax assets | (5,035) | (1,501) | 2,343 | |||||||||||||||||
| U.S. non-deductible expenses | 936 | 2,300 | 2,461 | |||||||||||||||||
| Impact of U.S. tax reform | — | — | 1,644 | |||||||||||||||||
| Net operating loss carryback | 0 | (2,696) | — | |||||||||||||||||
| State deferred tax rate changes | 592 | (40) | (3,354) | |||||||||||||||||
| Employee share-based payments | 173 | (184) | (2,817) | |||||||||||||||||
| Other, net | — | — | (32) | |||||||||||||||||
| Total income tax expense (benefit) from continuing operations | $ | 9,089 | $ | (8,673) | $ | 12,728 | ||||||||||||||
| (In thousands) | 2018 | 2017 | 2016 | |||||||||
| U.S. federal income tax expense (benefit) | $ | 33,023 | $ | 33,408 | $ | (27,815 | ) | |||||
| U.S. state income taxes, net of federal income tax benefit | 1,614 | 786 | (355 | ) | ||||||||
| U.S. domestic deductions and credits | (6,145 | ) | (1,210 | ) | (661 | ) | ||||||
| Capital loss on sale of equity interest in Brand with no realizable tax benefit | — | — | 16,106 | |||||||||
| Difference in effective tax rates on international earnings and remittances | 5,399 | 675 | 2,006 | |||||||||
| Uncertain tax position contingencies and settlements | (1,180 | ) | (1,517 | ) | (1,886 | ) | ||||||
| Changes in realization on beginning of the year deferred tax assets | (6,937 | ) | 2,758 | 1,978 | ||||||||
| Forward Loss Provisions in SBB Contract with no realizable tax benefits | — | — | 15,768 | |||||||||
| Global Intangible Low-Taxed Income | 400 | — | — | |||||||||
| U.S. non-deductible expenses | 2,277 | 664 | 724 | |||||||||
| Income related to the Infrastructure Transaction | — | — | (644 | ) | ||||||||
| Impact of U.S. tax reform | (15,409 | ) | 48,680 | — | ||||||||
| Cumulative effect of change in statutory tax rates/laws | — | (153 | ) | (388 | ) | |||||||
| Income from unconsolidated entities | — | — | 2,098 | |||||||||
| Other, net | (143 | ) | (288 | ) | (294 | ) | ||||||
| Total income tax expense | $ | 12,899 | $ | 83,803 | $ | 6,637 | ||||||
At December 31, 2018, 20172021, 2020 and 2016,2019, the Company's annual effective income tax rate on income (loss) from continuing operations was 8.2%24.2%, 87.8%16.0% and (8.4)%41.0%, respectively.
The Company’s international income from continuing operations before income taxes and equity income (loss) was
The Company’s differences in effective income tax ratesexpense for 20182021 and 20172020 on international earnings and remittances was
The Company's incomeU.S. loss from continuing operations before income taxes and equity income attributable to the U.S. was
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2020 to a $2.5$4.1 million income tax benefit in 20182021 primarily due primarily to the impactdecreased expenses from corporate strategic spending, recognition of the Tax Act, including the lower tax rate.net operating loss carrybacks not recurring in 2021, as well as disallowed interest expense.
The income tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 20182021 and 20172020 are as follows:
| 2018 | 2017 | |||||||||||||||
| (In thousands) | Asset | Liability | Asset | Liability | ||||||||||||
| Depreciation and amortization | $ | — | $ | 8,681 | $ | 6,616 | $ | — | ||||||||
| Expense accruals | 18,827 | — | 17,690 | — | ||||||||||||
| Inventories | 3,071 | — | 4,390 | — | ||||||||||||
| Provision for receivables | 690 | — | 649 | — | ||||||||||||
| Deferred revenue | — | 3,122 | — | 979 | ||||||||||||
| Operating loss carryforwards | 83,168 | — | 90,193 | — | ||||||||||||
| Foreign tax credit carryforwards | 25,814 | — | 27,256 | — | ||||||||||||
| Capital loss carryforwards | 9,759 | — | 11,011 | — | ||||||||||||
| Pensions | 40,442 | — | 47,153 | — | ||||||||||||
| Currency adjustments | 3,795 | — | 7,160 | — | ||||||||||||
Deferred financing costs | — | 2,227 | — | 2,135 | ||||||||||||
| Post-retirement benefits | 471 | — | 403 | — | ||||||||||||
| Stock based compensation | 5,832 | — | 4,761 | — | ||||||||||||
| Other | 5,886 | — | 7,684 | — | ||||||||||||
| Subtotal | 197,755 | 14,030 | 224,966 | 3,114 | ||||||||||||
| Valuation allowance | (138,862 | ) | — | (174,227 | ) | — | ||||||||||
| Total deferred income taxes | $ | 58,893 | $ | 14,030 | $ | 50,739 | $ | 3,114 | ||||||||
| 2021 (a) | 2020 (a) | |||||||||||||||||||||||||
| (In thousands) | Asset | Liability | Asset | Liability | ||||||||||||||||||||||
| Depreciation and amortization | $ | — | $ | 80,278 | $ | — | $ | 87,681 | ||||||||||||||||||
| Right-of-use assets | 25,759 | 23,406 | ||||||||||||||||||||||||
| Operating lease liabilities | 25,431 | 22,868 | ||||||||||||||||||||||||
| Expense accruals | 24,949 | — | 22,136 | — | ||||||||||||||||||||||
| Inventories | 3,400 | — | 2,721 | — | ||||||||||||||||||||||
| Provision for receivables | 5,504 | — | 4,903 | — | ||||||||||||||||||||||
| Deferred revenue | — | 4,124 | — | 4,425 | ||||||||||||||||||||||
| Operating loss carryforwards | 65,935 | — | 66,703 | — | ||||||||||||||||||||||
| Tax credit carryforwards | 18,608 | — | 15,630 | — | ||||||||||||||||||||||
| Pensions | 23,298 | — | 49,740 | — | ||||||||||||||||||||||
| Currency adjustments | 5,075 | — | 4,829 | — | ||||||||||||||||||||||
| Deferred financing costs | 359 | — | — | 269 | ||||||||||||||||||||||
| Section 163(j) disallowed interest expense | 4,843 | — | — | — | ||||||||||||||||||||||
| Post-retirement benefits | 335 | — | 340 | — | ||||||||||||||||||||||
| Stock based compensation | 7,396 | — | 6,696 | — | ||||||||||||||||||||||
| Other | 1,470 | — | 1,954 | — | ||||||||||||||||||||||
| Subtotal | 186,603 | 110,161 | 198,520 | 115,781 | ||||||||||||||||||||||
| Valuation allowance | (92,385) | — | (108,563) | — | ||||||||||||||||||||||
| Total deferred income taxes | $ | 94,218 | $ | 110,161 | $ | 89,957 | $ | 115,781 | ||||||||||||||||||
| (In thousands) | 2018 | 2017 | ||||||
| Deferred income tax assets | $ | 49,114 | $ | 51,574 | ||||
| Other liabilities | 4,251 | 3,949 | ||||||
At December 31, 2018,2021, the tax-effected amount of net operating loss carryforwards ("NOLs")NOLs totaled $83.2 million .$65.9 million. Tax-effected NOLs from international operations are $68.1$40.9 million. Of that amount, $56.6$32.0 million can be carried forward indefinitely and $11.5$8.9 million will expire at various times between 20192022 and 2039.2041. Tax-effected U.S. state NOLs are $15.1$16.0 million. Of that amount, $4.3$3.6 million expire at various times between 20192022 and 2023, $2.92026, $3.2 million expire at various times between 20242027 and 2028, $3.42031, $4.7 million expire at various times between 20292032 and 20332036 and $4.5 million expire at various times between 20342037 and 2038.2041. At December 31, 2018,2021, the tax-effected amount of capital loss carryforwardsU.S. Federal NOLs totaled
Valuation allowances of $138.9$92.4 million and $174.2$108.6 million at December 31, 20182021 and 2017,2020, respectively, related principally to deferred tax assets for pension liabilities, NOLs, foreign tax credit carryforwards capital loss carryforwards and foreign currency translation that are uncertain as to realizability. In 2018,2021, the Company finalized the impact of the Tax Act and reduced the provisional valuation allowance by $15.2 million because of the expected realization of foreign tax credit and state net operating loss carryforward. In addition, the U.K. valuation allowance was reduced by $13.6 million as a result of the Altek acquisition and a change in estimate of interest deductions. The Company recorded a valuation allowance reduction of
The Tax Act introduced a transition tax and a territorial tax system, which was effective beginning in 2018. The territorial tax system impacts the Company's overall global capital and legal entity structure, working capital, and repatriation plan on a go-forward basis. Based on the Company's analysis of the territorial tax system and other new international tax provisions, theThe Company continues to support the assertion to indefinitely reinvest $677 million of accumulatedasserts that all foreign earnings and profits in non-U.S. jurisdictions. Included in this amount is $628 million of deferred foreign income from foreign entities' deficit earnings and profits as of December 31, 2017 that remain untaxed as a result of the Tax Act and $49 million of untaxed earnings and profits generated during 2018. In addition, thewill be indefinitely reinvested to meet local cash needs. The Company recognized $4 million of GILTI included in the Tax Act which increasestherefore intends to limit distributions to earnings previously taxed in the U.S. Further, it is impracticable, or earnings that would qualify for the 100 percent dividends received deduction provided for in the Tax Act, and earnings that would not result in any significant foreign taxes. Therefore, the Company to estimate any future tax costs for any unrecognizedhas not recognized a deferred tax liabilities associated withliability on its indefinite reinvestment assertion, because the actual tax liability, if any, would be dependent on complex analysis and calculations considering various tax laws, exchange rates, circumstances existing when a repatriation, sale, or liquidation occurs, or other factors.investment in foreign subsidiaries.
The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits in income tax expense. During 2018 and 2016, theexpense or benefit. The Company recognized an income tax benefitexpense of $0.4 million, $0.2 million and $1.7$0.3 million during 2021, 2020 and 2019, respectively, for interest and penalties primarily due to the expiration of statutes of limitation and resolution of examinations. The Company did not recognize any income tax expense or benefit for interest and penalties during 2017.penalties. The Company has accrued $0.9$1.7 million, $1.1$1.4 million and $1.1$1.2 million for the payment of interest and penalties at December 31, 2018, 20172021, 2020 and 20162019, respectively.
A reconciliation of the change in the unrecognized income tax benefits balance from January 1, 20162019 to December 31, 20182021 is as follows:
| (In thousands) | Unrecognized Income Tax Benefits | Deferred Income Tax Benefits | Unrecognized Income Tax Benefits, Net of Deferred Income Tax Benefits | |||||||||
| Balances, January 1, 2016 | $ | 5,161 | $ | (44 | ) | $ | 5,117 | |||||
| Additions for tax positions related to the current year (includes currency translation adjustment) | 744 | (1 | ) | 743 | ||||||||
| Additions for tax positions related to prior years (includes currency translation adjustment) | 358 | (14 | ) | 344 | ||||||||
| Other reductions for tax positions related to prior years | (837 | ) | — | (837 | ) | |||||||
| Statutes of limitation expirations | (817 | ) | 27 | (790 | ) | |||||||
| Settlements | (27 | ) | 2 | (25 | ) | |||||||
| Balance at December 31, 2016 | 4,582 | (30 | ) | 4,552 | ||||||||
| Additions for tax positions related to the current year (includes currency translation adjustment) | 658 | (2 | ) | 656 | ||||||||
| Other reductions for tax positions related to prior years | (321 | ) | — | (321 | ) | |||||||
| Statutes of limitation expirations | (1,296 | ) | 1 | (1,295 | ) | |||||||
| Balance at December 31, 2017 | 3,623 | (31 | ) | 3,592 | ||||||||
| Additions for tax positions related to the current year (includes currency translation adjustment) | 196 | (1 | ) | 195 | ||||||||
| Statutes of limitation expirations | (1,397 | ) | 6 | (1,391 | ) | |||||||
| Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2018 | $ | 2,422 | $ | (26 | ) | $ | 2,396 | |||||
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| (In thousands) | Unrecognized Income Tax Benefits | Deferred Income Tax Benefits | Unrecognized Income Tax Benefits, Net of Deferred Income Tax Benefits | |||||||||||||||||
| Balances, January 1, 2019 | $ | 2,422 | $ | (26) | $ | 2,396 | ||||||||||||||
| Additions for tax positions related to the current year (includes currency translation adjustment) | 414 | (7) | 407 | |||||||||||||||||
| Additions for tax positions related to prior years (includes currency translation adjustment) | 681 | — | 681 | |||||||||||||||||
| Statutes of limitation expirations | (326) | 2 | (324) | |||||||||||||||||
| Settlements | (62) | 9 | (53) | |||||||||||||||||
| Balance at December 31, 2019 | 3,129 | (22) | 3,107 | |||||||||||||||||
| Additions for tax positions related to the current year (includes currency translation adjustment) | 596 | (2) | 594 | |||||||||||||||||
| Other reductions for tax positions related to prior years | (771) | — | (771) | |||||||||||||||||
| Statutes of limitation expirations | (58) | 2 | (56) | |||||||||||||||||
| Balance at December 31, 2020 | 2,896 | (22) | 2,874 | |||||||||||||||||
| Additions for tax positions related to the current year (includes currency translation adjustment) | 316 | (1) | 315 | |||||||||||||||||
| Additions for tax positions related to prior years (includes currency translation adjustment) | 500 | — | 500 | |||||||||||||||||
| Statutes of limitation expirations | (585) | 1 | (584) | |||||||||||||||||
| Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2021 | $ | 3,127 | $ | (22) | $ | 3,105 | ||||||||||||||
Within the next twelve months, it is reasonably possible that up to $0.1$0.4 million of unrecognized income tax benefits will be recognized upon settlement of income tax examinations and the expiration of various statutes of limitations.
The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. With few exceptions, the Company is no longer subject to U.S and international income tax examinations by tax authorities through 2012.2015.
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“potentially responsible party"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 did not have any material accruals or record any material expenses related to environmental matters during the periods presented.
The Company evaluates its liability for future environmental remediation costs on a quarterly basis.Although actual costs to be incurred at identified sites in future periods may vary from the estimates (given inherent uncertainties in evaluating environmental exposures), the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with environmental matters in excess of the amounts accrued would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The following table summarizes information related to the location and undiscounted amount of the Company's environmental liabilities:
| (In thousands) | December 31 2021 | December 31 2020 | ||||||||||||
Current portion of environmental liabilities (a) | $ | 7,338 | $ | 6,862 | ||||||||||
| Long-term environmental liabilities | 28,435 | 29,424 | ||||||||||||
| Total environmental liabilities | $ | 35,773 | $ | 36,286 | ||||||||||
(a) The current portion of environmental liabilities is included in the caption Other current liabilities on the 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.
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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. The Company believes 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, subject to applicable deductibles.
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.
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. On September 28, 2021, DTSC scheduled a public hearing on October 28, 2021 as part of its Violation Scoring Procedure (VSP) program to hear testimony on the compliance tier assignment assigned to the facility. The Company would have the ability to judicially challenge any adverse permit actions resulting from this process. 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. As a result, the administrative appeal and public hearing process 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 was completed during the third quarter of 2021 and the processing of the salt cakes has commenced. The Company has previously established a reserve of $7.5 million, which 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 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
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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 $20 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 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 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 must be 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 EURO 100,000 in fines with a smaller amount held in abeyance. 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.
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 value-added ("ICMS"),ICMS, services and social security tax disputes. The largest proportion of the assessed amounts relate to ICMS claims filed by the State Revenue Authorities from the State of São Paulo, Brazil (the "SPRA"),SPRA, encompassing the period from January 2002 to May 2005.
In October 2009 the Company received notification of the SPRA'sSPRA’s final administrative decision regarding the levying of ICMS in the State of São Paulo in relation to services provided to a customer in the State between January 2004 and May 2005. As of December 31, 2018,2021, the principal amount of the tax assessment from the SPRA with regard to this case is approximately $2$1.1 million,, with penalty, interest and fees assessed to date increasing such amount by an additional $21 million. Any change in the aggregate amount since the Company's last Annual Report on Form 10-K for the year ended December 31, 2017 is due to an increase in assessed interest and statutorily mandated legal fees for the period, as well as foreign currency translation.$15.4 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 $2$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 $9$7 million. All such amounts include the effect of foreign currency translation. The Company has filed a series of motions for clarification onappealed the ruling onein favor of which is still pending before the court. InSPRA to the event the motion for clarification is unsuccessful, the Company plans to appeal both the liability ruling and the amount assessed.Superior Court of Justice. Due to multiple court precedents in the Company's favor, as well as the Company's ability to seek clarification as well as 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 plans to appealhas appealed to the judicial phase.
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The aggregate amount assessed by the tax authorities in August 2005 was $6.5$4.5 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 $1.5$1.1 million,, with penalty and interest assessed through that date increasing such amount by an additional $5.0 million.$3.4 million. On December 6, 2018, the administrative tribunal reduced the applicable penalties to $1.2$0.8 million. After calculating the interest accrued on the current penalty, the Company estimates that this ruling reduces the current overall liability for this case to be approximately $10$5 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'scustomer’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 $1.9 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 million. On January 18, 2021, the Company filed a challenge to the assessment. Due to the multiple defenses that are available, the Company does not believe a loss is probable.
The Company intends to continue its practice of vigorously defending itself against these tax claims under various alternatives, including judicial appeal. The Company will continue to evaluate its potential liability with regard to these claims on a quarterly basis; however, it is not possible to predict the ultimate outcome of these tax-related disputes in Brazil. No loss provision has been recorded in the Company's consolidated financial statements for the disputes described above because the
loss contingency is not deemed probable, and the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with Brazilian tax disputes would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Brazilian Labor Disputes
The Company is subject to ongoing collective bargaining and individual labor claims in Brazil through the Harsco Metals & MineralsEnvironmental Segment which allege, among other things, the Company's failure to pay required amounts for overtime and vacation at certain sites. The Company is vigorously defending itself against these claims; however, litigation is inherently unpredictable, particularly in foreign jurisdictions. While the Company does not currently expect that the ultimate resolution of these claims will have a material adverse effect on the Company’s financial condition, results of operations or cash flows, it is not possible to predict the ultimate outcome of these labor-related disputes. As of December 31, 20182021 and 2017,2020, the Company has established reserves of $7.1$3.2 million and $9.6$4.3 million, respectively, on the Company's Consolidated Balance Sheets for amounts considered to be probable and estimable.
Other
The Company is named as one of many defendants (approximately 90 or more in most cases) in legal actions in the U.S. alleging personal injury from exposure to airborne asbestos over the past several decades. In their suits, the plaintiffs have named as defendants, among others, many manufacturers, distributors and installers of numerous types of equipment or products that allegedly contained asbestos.
The Company believes that the claims against it are without merit. The Company has never been a producer, manufacturer or processor of asbestos fibers. Any asbestos-containing part of a Company product used in the past was purchased from a supplier and the asbestos encapsulated in other materials such that airborne exposure, if it occurred, was not harmful and is not associated with the types of injuries alleged in the pending actions.
At December 31, 2018,2021, there were approximately 17,13417,240 pending asbestos personal injury actions filed against the Company. Of those actions, approximately 16,59216,610 were filed in the New York Supreme Court (New York County), approximately 116120 were filed in other New York State Supreme Court Counties and approximately 426510 were filed in courts located in other states.
The complaints in most of those actions generally follow a form that contains a standard damages demand of $20 million or $25 million, regardless of the individual plaintiff's alleged medical condition, and without identifying any specific Company product.
At December 31, 2018,2021, 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
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approximately 4260 cases in New York County are pending on the Active or In Extremis Docket created for plaintiffs who can demonstrate a malignant condition or physical impairment.
The Company has liability insurance coverage under various primary and excess policies that the Company believes will be available, if necessary, to substantially cover any liability that might ultimately be incurred in the asbestos actions referred to above. The costs and expenses of the asbestos actions are being paid by the Company’s insurers.
In view of the persistence of asbestos litigation in the U.S., the Company expects to continue to receive additional claims in the future. The Company intends to continue its practice of vigorously defending these claims and cases. At December 31, 2018,2021, the Company has obtained dismissal in approximately 28,17328,360 cases by stipulation or summary judgment prior to trial.
It is not possible to predict the ultimate outcome of asbestos-related actions in the U.S. due to the unpredictable nature of this litigation, and no loss provision has been recorded in the Company's consolidated financial statements because a loss contingency is not deemed probable or estimable. Despite this uncertainty, and although results of operations and cash flows for a given period could be adversely affected by asbestos-related actions, the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with asbestos litigation would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by established reserves, and, if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Insurance liabilities are recorded when it is probable that a liability has been incurred for a particular event and the amount of loss associated with the event can be reasonably estimated. Insurance reserves have been estimated based primarily upon actuarial calculations and reflect the undiscounted estimated liabilities for ultimate losses, including claims incurred but not reported. Inherent in these estimates are assumptions that are based on the Company's history of claims and losses, a detailed analysis of existing claims with respect to potential value, and current legal and legislative trends. If actual claims differ from those projected by management, changes (either increases or decreases) to insurance reserves may be required and would be recorded through income in the period the change was determined. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Insurance claim receivables are included in Insurance claim receivable and Other receivables on the Company's Consolidated Balance Sheets. See Note 1, Summary of Significant Accounting Policies, for additional information on Accrued insurance and loss reserves.
13. Capital Stock
The authorized capital stock of the Company consists of 150,000,000 shares of common stock and 4,000,000 shares of preferred stock, both having a par value of $1.25$1.25 per share. The preferred stock is issuable in series with terms as fixed by the Board of Directors (the "Board").Board. No preferred stock has been issued. The following table summarizes the Company's common stock:
Shares Issued | Treasury Shares (a) | Outstanding Shares | Shares Issued | Treasury Shares (a) | Outstanding Shares | ||||||||||||||||||||||||
| Outstanding, January 1, 2016 | 112,405,302 | 32,310,937 | 80,094,365 | ||||||||||||||||||||||||||
| Outstanding, January 1, 2019 | Outstanding, January 1, 2019 | 113,473,951 | 33,928,928 | 79,545,023 | |||||||||||||||||||||||||
| Shares issued for vested restricted stock units | 94,572 | 13,974 | 80,598 | Shares issued for vested restricted stock units | 321,965 | 125,863 | 196,102 | ||||||||||||||||||||||
| Outstanding, December 31, 2016 | 112,499,874 | 32,324,911 | 80,174,963 | ||||||||||||||||||||||||||
| Shares issued for vested performance units | Shares issued for vested performance units | 908,566 | 379,353 | 529,213 | |||||||||||||||||||||||||
| Stock appreciation rights exercised | Stock appreciation rights exercised | 15,865 | 4,619 | 11,246 | |||||||||||||||||||||||||
| Treasury shares purchased | Treasury shares purchased | — | 1,766,826 | (1,766,826) | |||||||||||||||||||||||||
| Outstanding, December 31, 2019 | Outstanding, December 31, 2019 | 114,720,347 | 36,205,589 | 78,514,758 | |||||||||||||||||||||||||
| Shares issued for vested restricted stock units | 375,355 | 105,431 | 269,924 | Shares issued for vested restricted stock units | 229,413 | 91,188 | 138,225 | ||||||||||||||||||||||
| Shares issued for vested performance stock units | Shares issued for vested performance stock units | 471,412 | 206,261 | 265,151 | |||||||||||||||||||||||||
| Stock appreciation rights exercised | 12,897 | 3,932 | 8,965 | Stock appreciation rights exercised | 8,870 | 2,634 | 6,236 | ||||||||||||||||||||||
| Outstanding, December 31, 2017 | 112,888,126 | 32,434,274 | 80,453,852 | ||||||||||||||||||||||||||
| Outstanding, December 31, 2020 | Outstanding, December 31, 2020 | 115,430,042 | 36,505,672 | 78,924,370 | |||||||||||||||||||||||||
| Shares issued for vested restricted stock units | 545,908 | 161,774 | 384,134 | Shares issued for vested restricted stock units | 305,535 | 112,275 | 193,260 | ||||||||||||||||||||||
| Shares issued for vested performance stock units | Shares issued for vested performance stock units | 124,077 | 54,950 | 69,127 | |||||||||||||||||||||||||
| Stock appreciation rights exercised | 39,917 | 11,808 | 28,109 | Stock appreciation rights exercised | 46,739 | 17,950 | 28,789 | ||||||||||||||||||||||
| Treasury shares purchased | — | 1,321,072 | (1,321,072 | ) | |||||||||||||||||||||||||
| Outstanding, December 31, 2018 | 113,473,951 | 33,928,928 | 79,545,023 | ||||||||||||||||||||||||||
| Outstanding, December 31, 2021 | Outstanding, December 31, 2021 | 115,906,393 | 36,690,847 | 79,215,546 | |||||||||||||||||||||||||