UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 20202021
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-03970
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware | 23-1483991 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) |
350 Poplar Church Road, | Camp Hill, | Pennsylvania | 17011 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code 717-763-7064717-763-7064
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, par value $1.25 per share | | HSC | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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Class | | Outstanding at October 31, 202029, 2021 |
Common stock, par value $1.25 per share | | 78,916,10679,203,660 |
HARSCO CORPORATION
FORM 10-Q
INDEX
Glossary of Defined Terms
Unless the context requires otherwise, "Harsco," the "Company," "we," "our," or "us" refers to Harsco Corporation on a consolidated basis. The Company also uses several other terms in this Quarterly Report on Form 10-Q, which are further defined below:
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Term | | Description |
AOCI | | Accumulated Other Comprehensive Income (Loss) |
AXC | | The former Harsco Industrial Air-X-Changers business |
CARES Act | | Coronavirus Aid, Relief, and Economic Security Act |
CCIRs | | Cross-currency interest rate swaps |
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 |
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 |
New Term LoanLoans | | $280500 million term loan raised in March 20202021 under the Senior Secured Credit Facilities, maturing on June 28, 2024March 10, 2028 |
Notes | | 5.75% Notes due July 31, 2027 |
OCI | | Other Comprehensive Income (Loss) |
Original Term Loan | | Term loan issued under the Senior Secured Credit Facilities, maturing on December 8, 2024 |
PA DEP | | Pennsylvania Department of Environmental Protection |
PK | | The former Harsco Industrial Patterson-Kelley business |
Revolving Credit Facility | | Multi-year revolving credit facility under the Senior Secured Credit Facility, with a facility limit of $700 million |
ROU | | Right of use |
SBB | | Federal railway system of Switzerland |
SCE | | Supreme Council for Environment in Bahrain |
SEC | | Securities and Exchange Commission |
Senior Secured Credit Facilities | | Primary source of borrowings comprised of the Revolving Credit Facility Original Term Loan and the New Term Loan |
SPRA | | State Revenue Authorities from the State of São Paulo, Brazil |
Term Loan A | | $280 million term loan raised in March 2020 under the Senior Secured Credit Facilities, maturing on June 28, 2024, repaid on March 10, 2021 |
Term Loan B | | Term loan issued under the Senior Secured Credit Facilities, maturing on December 8, 2024, 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 — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARSCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| (In thousands) | (In thousands) | | September 30 2020 | | December 31 2019 | (In thousands) | | September 30 2021 | | December 31 2020 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Current assets: | Current assets: | | | | | Current assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 83,859 | | | $ | 57,259 | | Cash and cash equivalents | | $ | 75,578 | | | $ | 76,454 | |
Restricted cash | Restricted cash | | 2,283 | | | 2,473 | | Restricted cash | | 4,525 | | | 3,215 | |
Trade accounts receivable, net | Trade accounts receivable, net | | 400,994 | | | 309,990 | | Trade accounts receivable, net | | 425,897 | | | 407,390 | |
| Other receivables | Other receivables | | 38,325 | | | 21,265 | | Other receivables | | 39,454 | | | 34,253 | |
Inventories | Inventories | | 170,037 | | | 156,991 | | Inventories | | 163,072 | | | 173,013 | |
Current portion of contract assets | Current portion of contract assets | | 53,256 | | | 31,166 | | Current portion of contract assets | | 100,731 | | | 54,754 | |
Current portion of assets held-for-sale | | 0 | | | 22,093 | | |
Prepaid expenses | | Prepaid expenses | | 62,022 | | | 56,099 | |
| Other current assets | Other current assets | | 66,219 | | | 51,575 | | Other current assets | | 16,303 | | | 10,645 | |
Total current assets | Total current assets | | 814,973 | | | 652,812 | | Total current assets | | 887,582 | | | 815,823 | |
| Property, plant and equipment, net | Property, plant and equipment, net | | 640,887 | | | 561,786 | | Property, plant and equipment, net | | 678,325 | | | 668,209 | |
Right-of-use assets, net | Right-of-use assets, net | | 96,800 | | | 52,065 | | Right-of-use assets, net | | 98,841 | | | 96,849 | |
Goodwill | Goodwill | | 881,911 | | | 738,369 | | Goodwill | | 896,728 | | | 902,074 | |
Intangible assets, net | Intangible assets, net | | 443,682 | | | 299,082 | | Intangible assets, net | | 413,538 | | | 438,565 | |
| Deferred income tax assets | Deferred income tax assets | | 11,871 | | | 14,288 | | Deferred income tax assets | | 10,689 | | | 15,274 | |
Assets held-for-sale | | 0 | | | 32,029 | | |
| Other assets | Other assets | | 55,365 | | | 17,036 | | Other assets | | 52,470 | | | 56,493 | |
Total assets | Total assets | | $ | 2,945,489 | | | $ | 2,367,467 | | Total assets | | $ | 3,038,173 | | | $ | 2,993,287 | |
LIABILITIES | LIABILITIES | | | | | LIABILITIES | | | | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
Short-term borrowings | Short-term borrowings | | $ | 10,246 | | | $ | 3,647 | | Short-term borrowings | | $ | 13,892 | | | $ | 7,450 | |
Current maturities of long-term debt | Current maturities of long-term debt | | 2,753 | | | 2,666 | | Current maturities of long-term debt | | 9,181 | | | 13,576 | |
Accounts payable | Accounts payable | | 230,948 | | | 176,755 | | Accounts payable | | 229,244 | | | 218,039 | |
| Accrued compensation | Accrued compensation | | 41,320 | | | 37,992 | | Accrued compensation | | 56,364 | | | 45,885 | |
Income taxes payable | Income taxes payable | | 3,872 | | | 18,692 | | Income taxes payable | | 11,994 | | | 3,499 | |
| Insurance liabilities | | 11,589 | | | 10,140 | | |
| Current portion of advances on contracts | Current portion of advances on contracts | | 42,763 | | | 53,906 | | Current portion of advances on contracts | | 58,034 | | | 39,917 | |
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | | 26,577 | | | 12,544 | | Current portion of operating lease liabilities | | 25,112 | | | 24,862 | |
Current portion of liabilities of assets held-for-sale | | 0 | | | 11,344 | | |
| Other current liabilities | Other current liabilities | | 169,898 | | | 137,208 | | Other current liabilities | | 174,461 | | | 184,727 | |
Total current liabilities | Total current liabilities | | 539,966 | | | 464,894 | | Total current liabilities | | 578,282 | | | 537,955 | |
Long-term debt | Long-term debt | | 1,246,395 | | | 775,498 | | Long-term debt | | 1,333,574 | | | 1,271,189 | |
| Insurance liabilities | | 16,267 | | | 18,515 | | |
| Retirement plan liabilities | Retirement plan liabilities | | 151,230 | | | 189,954 | | Retirement plan liabilities | | 175,362 | | | 231,335 | |
| Advances on contracts | Advances on contracts | | 43,273 | | | 6,408 | | Advances on contracts | | 9,732 | | | 45,017 | |
Operating lease liabilities | Operating lease liabilities | | 67,995 | | | 36,974 | | Operating lease liabilities | | 72,090 | | | 69,860 | |
Liabilities of assets held-for-sale | | 0 | | | 12,152 | | |
| Environmental liabilities | Environmental liabilities | | 29,747 | | | 5,600 | | Environmental liabilities | | 28,589 | | | 29,424 | |
Deferred tax liabilities | Deferred tax liabilities | | 43,178 | | | 24,242 | | Deferred tax liabilities | | 31,669 | | | 40,653 | |
Other liabilities | Other liabilities | | 41,024 | | | 43,571 | | Other liabilities | | 55,648 | | | 54,455 | |
Total liabilities | Total liabilities | | 2,179,075 | | | 1,577,808 | | Total liabilities | | 2,284,946 | | | 2,279,888 | |
COMMITMENTS AND CONTINGENCIES | | COMMITMENTS AND CONTINGENCIES | | 0 | | 0 |
HARSCO CORPORATION STOCKHOLDERS’ EQUITY | | HARSCO CORPORATION STOCKHOLDERS’ EQUITY | | | | |
| Common stock | | Common stock | | 144,856 | | | 144,288 | |
Additional paid-in capital | | Additional paid-in capital | | 213,095 | | | 204,078 | |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | (634,759) | | | (645,741) | |
Retained earnings | | Retained earnings | | 1,818,846 | | | 1,797,759 | |
Treasury stock | | Treasury stock | | (846,502) | | | (843,230) | |
Total Harsco Corporation stockholders’ equity | | Total Harsco Corporation stockholders’ equity | | 695,536 | | | 657,154 | |
Noncontrolling interests | | Noncontrolling interests | | 57,691 | | | 56,245 | |
Total equity | | Total equity | | 753,227 | | | 713,399 | |
Total liabilities and equity | | Total liabilities and equity | | $ | 3,038,173 | | | $ | 2,993,287 | |
See accompanying notes to unaudited condensed consolidated financial statements.
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(In thousands) | | September 30 2020 | | December 31 2019 |
COMMITMENTS AND CONTINGENCIES | | | | |
HARSCO CORPORATION STOCKHOLDERS’ EQUITY | | | | |
Preferred stock | | 0 | | | 0 | |
Common stock | | 144,268 | | | 143,400 | |
Additional paid-in capital | | 206,113 | | | 200,595 | |
Accumulated other comprehensive loss | | (597,052) | | | (587,622) | |
Retained earnings | | 1,804,061 | | | 1,824,100 | |
Treasury stock | | (843,098) | | | (838,893) | |
Total Harsco Corporation stockholders’ equity | | 714,292 | | | 741,580 | |
Noncontrolling interests | | 52,122 | | | 48,079 | |
Total equity | | 766,414 | | | 789,659 | |
Total liabilities and equity | | $ | 2,945,489 | | | $ | 2,367,467 | |
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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| | Three Months Ended | | Nine Months Ended | |
| | September 30 | | September 30 | |
(In thousands, except per share amounts) | | 2021 | | 2020 | | 2021 | | 2020 | |
Revenues from continuing operations: | | | | | | | | | |
Service revenues | | $ | 438,624 | | | $ | 384,506 | | | $ | 1,299,805 | | | $ | 1,021,738 | | |
Product revenues | | 105,677 | | | 124,892 | | | 343,171 | | | 333,782 | | |
Total revenues | | 544,301 | | | 509,398 | | | 1,642,976 | | | 1,355,520 | | |
Costs and expenses from continuing operations: | | | | | | | | | |
Cost of services sold | | 348,243 | | | 313,330 | | | 1,031,258 | | | 835,879 | | |
Cost of products sold | | 86,119 | | | 98,849 | | | 278,557 | | | 256,910 | | |
Selling, general and administrative expenses | | 82,090 | | | 87,954 | | | 247,798 | | | 241,224 | | |
Research and development expenses | | 764 | | | 568 | | | 2,210 | | | 2,620 | | |
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Other (income) expenses, net | | (2,835) | | | 3,633 | | | (7,810) | | | 9,074 | | |
Total costs and expenses | | 514,381 | | | 504,334 | | | 1,552,013 | | | 1,345,707 | | |
Operating income from continuing operations | | 29,920 | | | 5,064 | | | 90,963 | | | 9,813 | | |
Interest income | | 618 | | | 604 | | | 1,841 | | | 1,613 | | |
Interest expense | | (16,004) | | | (15,794) | | | (48,854) | | | (43,396) | | |
Unused debt commitment fees, amendment fees and loss on extinguishment of debt | | (198) | | | — | | | (5,506) | | | (1,920) | | |
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Defined benefit pension income | | 3,906 | | | 1,859 | | | 11,833 | | | 5,171 | | |
Income (loss) from continuing operations before income taxes and equity income | | 18,242 | | | (8,267) | | | 50,277 | | | (28,719) | | |
Income tax benefit (expense) from continuing operations | | (6,989) | | | 1,654 | | | (19,782) | | | 4,640 | | |
Equity income (loss) of unconsolidated entities, net | | (293) | | | 9 | | | (488) | | | 176 | | |
Income (loss) from continuing operations | | 10,960 | | | (6,604) | | | 30,007 | | | (23,903) | | |
Discontinued operations: | | | | | | | | | |
Gain (loss) on sale of discontinued business | | — | | | — | | | — | | | 18,371 | | |
Loss from discontinued businesses | | (1,528) | | | (1,531) | | | (4,770) | | | (1,232) | | |
Income tax benefit (expense) from discontinued businesses | | 396 | | | (204) | | | 1,236 | | | (9,803) | | |
Income (loss) from discontinued operations, net of tax | | (1,132) | | | (1,735) | | | (3,534) | | | 7,336 | | |
Net income (loss) | | 9,828 | | | (8,339) | | | 26,473 | | | (16,567) | | |
Less: Net income attributable to noncontrolling interests | | (2,264) | | | (1,239) | | | (5,386) | | | (3,472) | | |
Net income (loss) attributable to Harsco Corporation | | $ | 7,564 | | | $ | (9,578) | | | $ | 21,087 | | | $ | (20,039) | | |
Amounts attributable to Harsco Corporation common stockholders: | |
Income (loss) from continuing operations, net of tax | | $ | 8,696 | | | $ | (7,843) | | | $ | 24,621 | | | $ | (27,375) | | |
Income (loss) from discontinued operations, net of tax | | (1,132) | | | (1,735) | | | (3,534) | | | 7,336 | | |
Net income (loss) attributable to Harsco Corporation common stockholders | | $ | 7,564 | | | $ | (9,578) | | | $ | 21,087 | | | $ | (20,039) | | |
Weighted-average shares of common stock outstanding | | 79,287 | | | 79,000 | | | 79,214 | | | 78,916 | | |
Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders: | |
Continuing operations | | $ | 0.11 | | | $ | (0.10) | | | $ | 0.31 | | | $ | (0.35) | | |
Discontinued operations | | (0.01) | | | (0.02) | | | (0.04) | | | 0.09 | | |
Basic earnings (loss) per share attributable to Harsco Corporation common stockholders | | $ | 0.10 | | | $ | (0.12) | | | $ | 0.27 | | | $ | (0.25) | | (a) |
Diluted weighted-average shares of common stock outstanding | | 80,275 | | | 79,000 | | | 80,356 | | | 78,916 | | |
Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders: | |
Continuing operations | | $ | 0.11 | | | $ | (0.10) | | | $ | 0.31 | | | $ | (0.35) | | |
Discontinued operations | | (0.01) | | | (0.02) | | | (0.04) | | | 0.09 | | |
Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders | | $ | 0.09 | | (a) | $ | (0.12) | | | $ | 0.26 | | (a) | $ | (0.25) | | (a) |
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(a) Does not total due to rounding.
See accompanying notes to unaudited condensed consolidated financial statements.
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME (LOSS) (Unaudited)
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| | Three Months Ended | | Nine Months Ended | |
| | September 30 | | September 30 | |
(In thousands, except per share amounts) | | 2020 | | 2019 | | 2020 | | 2019 | |
Revenues from continuing operations: | | | | | | | | | |
Service revenues | | $ | 384,279 | | | $ | 316,667 | | | $ | 1,021,196 | | | $ | 784,190 | | |
Product revenues | | 125,119 | | | 106,488 | | | 334,324 | | | 319,765 | | |
Total revenues | | 509,398 | | | 423,155 | | | 1,355,520 | | | 1,103,955 | | |
Costs and expenses from continuing operations: | | | | | | | | | |
Cost of services sold | | 313,136 | | | 239,519 | | | 835,277 | | | 608,230 | | |
Cost of products sold | | 99,043 | | | 71,970 | | | 257,512 | | | 220,634 | | |
Selling, general and administrative expenses | | 87,954 | | | 63,197 | | | 241,224 | | | 187,104 | | |
Research and development expenses | | 568 | | | 1,341 | | | 2,620 | | | 3,210 | | |
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Other expenses, net | | 3,633 | | | 383 | | | 9,074 | | | 409 | | |
Total costs and expenses | | 504,334 | | | 376,410 | | | 1,345,707 | | | 1,019,587 | | |
Operating income from continuing operations | | 5,064 | | | 46,745 | | | 9,813 | | | 84,368 | | |
Interest income | | 604 | | | 445 | | | 1,613 | | | 1,569 | | |
Interest expense | | (15,794) | | | (12,819) | | | (43,396) | | | (24,429) | | |
Unused debt commitment and amendment fees | | 0 | | | (158) | | | (1,920) | | | (7,593) | | |
| | | | | | | | | |
Defined benefit pension income (expense) | | 1,859 | | | (1,356) | | | 5,171 | | | (4,166) | | |
Income (loss) from continuing operations before income taxes and equity income | | (8,267) | | | 32,857 | | | (28,719) | | | 49,749 | | |
Income tax benefit (expense) | | 1,654 | | | (12,601) | | | 4,640 | | | (17,814) | | |
Equity income of unconsolidated entities, net | | 9 | | | 81 | | | 176 | | | 151 | | |
Income (loss) from continuing operations | | (6,604) | | | 20,337 | | | (23,903) | | | 32,086 | | |
Discontinued operations: | | | | | | | | | |
Gain on sale of discontinued business | | 0 | | | 527,980 | | | 18,371 | | | 527,980 | | |
Income (loss) from discontinued businesses | | (1,531) | | | 272 | | | (1,232) | | | 23,958 | | |
Income tax expense related to discontinued businesses | | (204) | | | (110,732) | | | (9,803) | | | (112,701) | | |
Income (loss) from discontinued operations | | (1,735) | | | 417,520 | | | 7,336 | | | 439,237 | | |
Net income (loss) | | (8,339) | | | 437,857 | | | (16,567) | | | 471,323 | | |
Less: Net income attributable to noncontrolling interests | | (1,239) | | | (2,506) | | | (3,472) | | | (6,633) | | |
Net income (loss) attributable to Harsco Corporation | | $ | (9,578) | | | $ | 435,351 | | | $ | (20,039) | | | $ | 464,690 | | |
Amounts attributable to Harsco Corporation common stockholders: | |
Income (loss) from continuing operations, net of tax | | $ | (7,843) | | | $ | 17,831 | | | $ | (27,375) | | | $ | 25,453 | | |
Income (loss) from discontinued operations, net of tax | | (1,735) | | | 417,520 | | | 7,336 | | | 439,237 | | |
Net income (loss) attributable to Harsco Corporation common stockholders | | $ | (9,578) | | | $ | 435,351 | | | $ | (20,039) | | | $ | 464,690 | | |
Weighted-average shares of common stock outstanding | | 79,000 | | | 79,666 | | | 78,916 | | | 79,966 | | |
Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders: | |
Continuing operations | | $ | (0.10) | | | $ | 0.22 | | | $ | (0.35) | | | $ | 0.32 | | |
Discontinued operations | | (0.02) | | | 5.24 | | | 0.09 | | | 5.49 | | |
Basic earnings (loss) per share attributable to Harsco Corporation common stockholders | | $ | (0.12) | | | $ | 5.46 | | | $ | (0.25) | | (a) | $ | 5.81 | | |
Diluted weighted-average shares of common stock outstanding | | 79,000 | | | 81,110 | | | 78,916 | | | 81,749 | | |
Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders: | |
Continuing operations | | $ | (0.10) | | | $ | 0.22 | | | $ | (0.35) | | | $ | 0.31 | | |
Discontinued operations | | (0.02) | | | 5.15 | | | 0.09 | | | 5.37 | | |
Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders | | $ | (0.12) | | | $ | 5.37 | | | $ | (0.25) | | (a) | $ | 5.68 | | |
| | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | |
| | Three Months Ended |
| | September 30 |
(In thousands) | | 2021 | | 2020 |
Net income (loss) | | $ | 9,828 | | | $ | (8,339) | |
Other comprehensive income (loss): | | | | |
Foreign currency translation adjustments, net of deferred income taxes of $(1,850) and $2,418 in 2021 and 2020, respectively | | (27,587) | | | 17,527 | |
Net income (loss) on cash flow hedging instruments, net of deferred income taxes of $(217) and $(125) in 2021 and 2020, respectively | | 822 | | | (263) | |
Pension liability adjustments, net of deferred income taxes of $(358) and $(323) in 2021 and 2020, respectively | | 17,768 | | | (9,153) | |
Unrealized gain on marketable securities, net of deferred income taxes of $— and $(4) in 2021 and 2020, respectively | | — | | | 9 | |
Total other comprehensive income (loss) | | (8,997) | | | 8,120 | |
Total comprehensive income (loss) | | 831 | | | (219) | |
Less: Comprehensive income attributable to noncontrolling interests | | (1,820) | | | (2,795) | |
Comprehensive loss attributable to Harsco Corporation | | $ | (989) | | | $ | (3,014) | |
(a) Does not total due to rounding | | | | | | | | | | | | | | |
| | | | |
| | Nine Months Ended |
| | September 30 |
(In thousands) | | 2021 | | 2020 |
Net income (loss) | | $ | 26,473 | | | $ | (16,567) | |
Other comprehensive income (loss): | | | | |
Foreign currency translation adjustments, net of deferred income taxes of $(675) and $(2,323) in 2021 and 2020, respectively | | (15,437) | | | (35,244) | |
Net income (loss) on cash flow hedging instruments, net of deferred income taxes of $(519) and $141 in 2021 and 2020, respectively | | 1,745 | | | (1,622) | |
Pension liability adjustments, net of deferred income taxes of $(1,054) and $(2,356) in 2021 and 2020, respectively | | 23,812 | | | 28,037 | |
Unrealized gain (loss) on marketable securities, net of deferred income taxes of $(9) and $8 in 2021 and 2020, respectively | | 25 | | | (22) | |
Total other comprehensive income (loss) | | 10,145 | | | (8,851) | |
Total comprehensive income (loss) | | 36,618 | | | (25,418) | |
Less: Comprehensive income attributable to noncontrolling interests | | (4,549) | | | (4,053) | |
Comprehensive income (loss) attributable to Harsco Corporation | | $ | 32,069 | | | $ | (29,471) | |
See accompanying notes to unaudited condensed consolidated financial statements.
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)CASH FLOWS (Unaudited)
| | | | | | | | | | | | | | |
| | | | |
| | Three Months Ended |
| | September 30 |
(In thousands) | | 2020 | | 2019 |
Net income (loss) | | $ | (8,339) | | | $ | 437,857 | |
Other comprehensive income (loss): | | | | |
Foreign currency translation adjustments, net of deferred income taxes of $2,418 and $(1,834) in 2020 and 2019, respectively | | 17,527 | | | (22,780) | |
Net loss on cash flow hedging instruments, net of deferred income taxes of $(125) and $54 in 2020 and 2019, respectively | | (263) | | | (314) | |
Pension liability adjustments, net of deferred income taxes of $(323) and $(340) in 2020 and 2019, respectively | | (9,153) | | | 13,880 | |
Unrealized gain (loss) on marketable securities, net of deferred income taxes of $(4) and $2 in 2020 and 2019, respectively | | 9 | | | (6) | |
Total other comprehensive income (loss) | | 8,120 | | | (9,220) | |
Total comprehensive income (loss) | | (219) | | | 428,637 | |
Less: Comprehensive income attributable to noncontrolling interests | | (2,795) | | | (821) | |
Comprehensive income (loss) attributable to Harsco Corporation | | $ | (3,014) | | | $ | 427,816 | |
| | | | | | | | | | | | | | |
| | | | |
| | Nine Months Ended |
| | September 30 |
(In thousands) | | 2020 | | 2019 |
Net income (loss) | | $ | (16,567) | | | $ | 471,323 | |
Other comprehensive income (loss): | | | | |
Foreign currency translation adjustments, net of deferred income taxes of $(2,323) and $(2,086) in 2020 and 2019, respectively | | (35,244) | | | (22,276) | |
Net loss on cash flow hedging instruments, net of deferred income taxes of $141 and $1,195 in 2020 and 2019, respectively | | (1,622) | | | (4,485) | |
Pension liability adjustments, net of deferred income taxes of $(2,356) and $(1,061) in 2020 and 2019, respectively | | 28,037 | | | 25,651 | |
Unrealized gain (loss) on marketable securities, net of deferred income taxes of $8 and $(6) in 2020 and 2019, respectively | | (22) | | | 19 | |
Total other comprehensive loss | | (8,851) | | | (1,091) | |
Total comprehensive income (loss) | | (25,418) | | | 470,232 | |
Less: Comprehensive income attributable to noncontrolling interests | | (4,053) | | | (4,768) | |
Comprehensive income (loss) attributable to Harsco Corporation | | $ | (29,471) | | | $ | 465,464 | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30 |
(In thousands) | | 2021 | | 2020 |
Cash flows from operating activities: | | | | |
Net income (loss) | | $ | 26,473 | | | $ | (16,567) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation | | 98,383 | | | 93,864 | |
Amortization | | 26,554 | | | 24,721 | |
Deferred income tax (benefit) expense | | (8,911) | | | 2,346 | |
Equity (income) loss of unconsolidated entities, net | | 488 | | | (176) | |
| | | | |
Gain on sale from discontinued business | | — | | | (18,371) | |
| | | | |
Loss on early extinguishment of debt | | 2,668 | | | — | |
Other, net | | (1,147) | | | (336) | |
Changes in assets and liabilities, net of acquisitions and dispositions of businesses: | | | | |
Accounts receivable | | (32,563) | | | 26,308 | |
Income tax refunds receivable | | 735 | | | (11,168) | |
Inventories | | 3,557 | | | (11,801) | |
Contract assets | | (52,205) | | | (26,775) | |
Right-of-use assets | | 21,050 | | | 18,195 | |
Accounts payable | | 12,111 | | | (1,488) | |
Accrued interest payable | | (7,840) | | | (9,984) | |
Accrued compensation | | 12,098 | | | 1,795 | |
Advances on contracts | | (13,997) | | | 19,145 | |
| | | | |
| | | | |
Operating lease liabilities | | (20,554) | | | (17,864) | |
Retirement plan liabilities, net | | (36,700) | | | (23,902) | |
Income taxes payable - Gain on sale of discontinued businesses | | — | | | (10,342) | |
Other assets and liabilities | | 16,550 | | | 4,676 | |
Net cash provided by operating activities | | 46,750 | | | 42,276 | |
Cash flows from investing activities: | | | | |
Purchases of property, plant and equipment | | (109,507) | | | (79,096) | |
Purchases of businesses, net of cash acquired | | — | | | (432,855) | |
Proceeds from sale of discontinued business, net | | — | | | 37,219 | |
Proceeds from sales of assets | | 15,512 | | | 4,473 | |
Expenditures for intangible assets | | (287) | | | (169) | |
Proceeds from notes receivable | | 6,400 | | | — | |
Net proceeds (payments) from settlement of foreign currency forward exchange contracts | | (1,064) | | | 536 | |
| | | | |
Other investing activities, net | | 181 | | | (197) | |
Net cash used by investing activities | | (88,765) | | | (470,089) | |
Cash flows from financing activities: | | | | |
Short-term borrowings, net | | 4,650 | | | 1,712 | |
Current maturities and long-term debt: | | | | |
Additions | | 507,468 | | | 580,903 | |
Reductions | | (452,351) | | | (111,999) | |
| | | | |
Dividends paid to noncontrolling interests | | (3,103) | | | — | |
| | | | |
| | | | |
| | | | |
| | | | |
Stock-based compensation - Employee taxes paid | | (3,273) | | | (4,188) | |
Payment of contingent consideration | | (734) | | | (2,342) | |
| | | | |
| | | | |
Deferred financing costs | | (7,828) | | | (1,928) | |
Other financing activities, net | | (601) | | | (1,368) | |
Net cash provided by financing activities | | 44,228 | | | 460,790 | |
Effect of exchange rate changes on cash and cash equivalents, including restricted cash | | (1,779) | | | (6,567) | |
Net increase in cash and cash equivalents, including restricted cash | | 434 | | | 26,410 | |
Cash and cash equivalents, including restricted cash, at beginning of period | | 79,669 | | | 59,732 | |
Cash and cash equivalents, including restricted cash, at end of period | | $ | 80,103 | | | $ | 86,142 | |
| | | | |
Supplementary cash flow information: | | | | |
Change in accrual for purchases of property, plant and equipment included in accounts payable | | $ | 2,357 | | | $ | 3,060 | |
See accompanying notes to unaudited condensed consolidated financial statements.
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSEQUITY (Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30 |
(In thousands) | | 2020 | | 2019 |
Cash flows from operating activities: | | | | |
Net income (loss) | | $ | (16,567) | | | $ | 471,323 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation | | 93,864 | | | 89,681 | |
Amortization | | 24,721 | | | 11,941 | |
Deferred income tax expense | | 2,346 | | | 11,500 | |
Equity income of unconsolidated entities, net | | (176) | | | (151) | |
Dividends from unconsolidated entities | | 0 | | | 125 | |
Gain on sale from discontinued business | | (18,371) | | | (527,980) | |
| | | | |
Loss on early extinguishment of debt | | 0 | | | 5,314 | |
Other, net | | (336) | | | 2,187 | |
Changes in assets and liabilities, net of acquisitions and dispositions of businesses: | | | | |
Accounts receivable | | 26,308 | | | (12,395) | |
Income tax refunds receivable | | (11,168) | | | 0 | |
Inventories | | (11,801) | | | (43,477) | |
Contract assets | | (26,775) | | | (5,269) | |
Right-of-use assets | | 18,195 | | | 11,204 | |
Accounts payable | | (1,488) | | | 5,615 | |
Accrued interest payable | | (9,984) | | | 7,398 | |
Accrued compensation | | 1,795 | | | (12,802) | |
Advances on contracts | | 19,145 | | | (17,067) | |
| | | | |
| | | | |
Operating lease liabilities | | (17,864) | | | (10,919) | |
Retirement plan liabilities, net | | (23,902) | | | (18,800) | |
Income taxes payable - Gain on sale of discontinued businesses | | (10,342) | | | 102,940 | |
Other assets and liabilities | | 4,676 | | | (20,339) | |
Net cash provided by operating activities | | 42,276 | | | 50,029 | |
Cash flows from investing activities: | | | | |
Purchases of property, plant and equipment | | (79,096) | | | (147,071) | |
Purchases of businesses, net of cash acquired | | (432,855) | | | (623,495) | |
Proceeds from sale of discontinued business, net | | 37,219 | | | 599,685 | |
Proceeds from sales of assets | | 4,473 | | | 7,560 | |
Expenditures for intangible assets | | (169) | | | (1,246) | |
Net proceeds from settlement of foreign currency forward exchange contracts | | 536 | | | 1,453 | |
Payments for interest rate swap terminations | | 0 | | | (2,758) | |
Other investing activities, net | | (197) | | | 0 | |
Net cash used by investing activities | | (470,089) | | | (165,872) | |
Cash flows from financing activities: | | | | |
Short-term borrowings, net | | 1,712 | | | (1,417) | |
Current maturities and long-term debt: | | | | |
Additions | | 580,903 | | | 781,987 | |
Reductions | | (111,999) | | | (604,616) | |
| | | | |
Dividends paid to noncontrolling interests | | 0 | | | (3,103) | |
| | | | |
| | | | |
Sale of noncontrolling interests | | 0 | | | 4,026 | |
Common stock acquired for treasury | | 0 | | | (25,752) | |
Stock-based compensation - Employee taxes paid | | (4,188) | | | (11,202) | |
Payment of contingent consideration | | (2,342) | | | 0 | |
| | | | |
| | | | |
Deferred financing costs | | (1,928) | | | (11,073) | |
Other financing activities, net | | (1,368) | | | 0 | |
Net cash provided by financing activities | | 460,790 | | | 128,850 | |
Effect of exchange rate changes on cash and cash equivalents, including restricted cash | | (6,567) | | | (2,234) | |
Net increase in cash and cash equivalents, including restricted cash | | 26,410 | | | 10,773 | |
Cash and cash equivalents, including restricted cash, at beginning of period | | 59,732 | | | 67,146 | |
Cash and cash equivalents, including restricted cash, at end of period | | $ | 86,142 | | | $ | 77,919 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Harsco Corporation Stockholders’ Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | |
(In thousands, except share amounts) | | Issued | | Treasury | | | | | | Total |
Balances, December 31, 2019 | | $ | 143,400 | | | $ | (838,893) | | | $ | 200,595 | | | $ | 1,824,100 | | | $ | (587,622) | | | $ | 48,079 | | | $ | 789,659 | |
| | | | | | | | | | | | | | |
Net income | | | | | | | | 141 | | | | | 1,086 | | | 1,227 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total other comprehensive loss, net of deferred income taxes of $(5,267) | | | | | | | | | | (28,854) | | | (1,148) | | | (30,002) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Vesting of restricted stock units and other stock grants, net 104,840 shares | | 230 | | | (889) | | | (230) | | | | | | | | | (889) | |
Vesting of performance share units, net 265,151 shares | | 589 | | | (3,205) | | | (589) | | | | | | | | | (3,205) | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 2,080 | | | | | | | | | 2,080 | |
Balances, March 31, 2020 | | 144,219 | | | (842,987) | | | 201,856 | | | 1,824,241 | | | (616,476) | | | 48,017 | | | 758,870 | |
| | | | | | | | | | | | | | |
Net income (loss) | | | | | | | | (10,602) | | | | | 1,147 | | | (9,455) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total other comprehensive income, net of deferred income taxes of $(1,229) | | | | | | | | | | 12,858 | | | 173 | | | 13,031 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 6,744 shares | | 8 | | | (16) | | | (8) | | | | | | | | | (16) | |
Vesting of restricted stock units and other stock grants, net 14,211 shares | | 18 | | | — | | | (18) | | | | | | | | | — | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 2,086 | | | | | | | | | 2,086 | |
Balances, June 30, 2020 | | 144,245 | | | (843,003) | | | 203,916 | | | 1,813,639 | | | (603,618) | | | 49,337 | | | 764,516 | |
| | | | | | | | | | | | | | |
Net income (loss) | | | | | | | | (9,578) | | | | | 1,239 | | | (8,339) | |
Cash dividends declared: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | (8) | | | (8) | |
Total other comprehensive income, net of deferred income taxes of $1,966 | | | | | | | | | | 6,566 | | | 1,554 | | | 8,120 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 1,609 shares | | 3 | | | (8) | | | (3) | | | | | | | | | (8) | |
Vesting of restricted stock units and other stock grants, net 10,910 shares | | 20 | | | (87) | | | (20) | | | | | | | | | (87) | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 2,220 | | | | | | | | | 2,220 | |
Balances, September 30, 2020 | | $ | 144,268 | | | $ | (843,098) | | | $ | 206,113 | | | $ | 1,804,061 | | | $ | (597,052) | | | $ | 52,122 | | | $ | 766,414 | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30 |
(In thousands) | | 2020 | | 2019 |
| | | | |
Supplementary cash flow information: | | | | |
Change in accrual for purchases of property, plant and equipment included in accounts payable | | $ | 3,060 | | | $ | 5,917 | |
See accompanying notes to unaudited condensed consolidated financial statements.
HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Harsco Corporation Stockholders’ Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | |
(In thousands, except share amounts) | | Issued | | Treasury | | | | | | Total |
Balances, December 31, 2018 | | $ | 141,842 | | | $ | (795,821) | | | $ | 190,597 | | | $ | 1,298,752 | | | $ | (567,107) | | | $ | 45,113 | | | $ | 313,376 | |
Adoption of new accounting standard | | | | | | | | 21,429 | | | (21,429) | | | | | 0 | |
Net income | | | | | | | | 20,697 | | | | | 1,840 | | | 22,537 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total other comprehensive income, net of deferred income taxes of $1,729 | | | | | | | | | | 4,111 | | | 420 | | | 4,531 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Sale of subsidiary shares to noncontrolling interest | | | | | | | | | | | | 876 | | | 876 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 927 shares | | 2 | | | (8) | | | (2) | | | | | | | | | (8) | |
Vesting of restricted stock units and other stock grants, net 94,229 shares | | 198 | | | (1,456) | | | (198) | | | | | | | | | (1,456) | |
Vesting of performance share units, net 529,213 shares | | 1,136 | | | (8,235) | | | (1,149) | | | | | | | | | (8,248) | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 3,664 | | | | | | | | | 3,664 | |
Balances, March 31, 2019 | | 143,178 | | | (805,520) | | | 192,912 | | | 1,340,878 | | | (584,425) | | | 48,249 | | | 335,272 | |
| | | | | | | | | | | | | | |
Net income | | | | | | | | 8,642 | | | | | 2,287 | | | 10,929 | |
Cash dividends declared: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | (4,690) | | | (4,690) | |
Total other comprehensive income (loss), net of deferred income taxes of $(1,569) | | | | | | | | | | 4,196 | | | (598) | | | 3,598 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Contributions receivable from noncontrolling interest (a) | | | | | | | | | | | | 3,150 | | | 3,150 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 10,216 shares | | 18 | | | (108) | | | (18) | | | | | | | | | (108) | |
Vesting of restricted stock units and other stock grants, net 99,134 shares | | 198 | | | (1,375) | | | (198) | | | | | | | | | (1,375) | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 2,338 | | | | | | | | | 2,338 | |
Balances, June 30, 2019 | | 143,394 | | | (807,003) | | | 195,034 | | | 1,349,520 | | | (580,229) | | | 48,398 | | | 349,114 | |
| | | | | | | | | | | | | | |
Net income | | | | | | | | 435,351 | | | | | 2,506 | | | 437,857 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total other comprehensive loss, net of deferred income taxes of $(2,118) | | | | | | | | | | (7,530) | | | (1,690) | | | (9,220) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Strategic venture exit | | | | | | | | | | | | (3,694) | | | (3,694) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 103 shares | | | | (1) | | | | | | | | | | | (1) | |
Vesting of restricted stock units and other stock grants, net 984 shares | | 2 | | | (19) | | | (2) | | | | | | | | | (19) | |
Treasury shares repurchased, 1,417,556 shares | | | | (25,752) | | | | | | | | | | | (25,752) | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 2,975 | | | | | | | | | 2,975 | |
Balances, September 30, 2019 | | $ | 143,396 | | | $ | (832,775) | | | $ | 198,007 | | | $ | 1,784,871 | | | $ | (587,759) | | | $ | 45,520 | | | $ | 751,260 | |
(a) Cash contribution was received during July 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Harsco Corporation Stockholders’ Equity | | | | |
(In thousands, except share amounts) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | |
| Issued | | Treasury | | | | | | Total |
Balances, December 31, 2019 | | $ | 143,400 | | | $ | (838,893) | | | $ | 200,595 | | | $ | 1,824,100 | | | $ | (587,622) | | | $ | 48,079 | | | $ | 789,659 | |
| | | | | | | | | | | | | | |
Net income | | | | | | | | 141 | | | | | 1,086 | | | 1,227 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total other comprehensive loss, net of deferred income taxes of $(5,267) | | | | | | | | | | (28,854) | | | (1,148) | | | (30,002) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Vesting of restricted stock units and other stock grants, net 104,840 shares | | 230 | | | (889) | | | (230) | | | | | | | | | (889) | |
Vesting of performance share units, net 265,151 shares | | 589 | | | (3,205) | | | (589) | | | | | | | | | (3,205) | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 2,080 | | | | | | | | | 2,080 | |
Balances, March 31, 2020 | | 144,219 | | | (842,987) | | | 201,856 | | | 1,824,241 | | | (616,476) | | | 48,017 | | | 758,870 | |
Net income (loss) | | | | | | | | (10,602) | | | $ | — | | | 1,147 | | | (9,455) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total other comprehensive income, net of deferred income taxes of $(1,229) | | | | | | | | | | 12,858 | | | 173 | | | 13,031 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 6,744 shares | | 8 | | | (16) | | | (8) | | | | | | | | | (16) | |
Vesting of restricted stock units and other stock grants, net 14,211 shares | | 18 | | | | | (18) | | | | | | | | | 0 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 2,086 | | | | | | | | | 2,086 | |
Balances, June 30, 2020 | | 144,245 | | | (843,003) | | | 203,916 | | | 1,813,639 | | | (603,618) | | | 49,337 | | | 764,516 | |
Net income (loss) | | | | | | | | (9,578) | | | $ | — | | | 1,239 | | | (8,339) | |
Cash dividends declared: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | (8) | | | (8) | |
| | | | | | | | | | | | | | |
Total other comprehensive income, net of deferred income taxes of $1,966 | | | | | | | | | | 6,566 | | | 1,554 | | | 8,120 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 1,609 shares | | 3 | | | (8) | | | (3) | | | | | | | | | (8) | |
Vesting of restricted stock units and other stock grants, net 10,910 shares | | 20 | | | (87) | | | (20) | | | | | | | | | (87) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 2,220 | | | | | | | | | 2,220 | |
Balances, September 30, 2020 | | $ | 144,268 | | | $ | (843,098) | | | $ | 206,113 | | | $ | 1,804,061 | | | $ | (597,052) | | | $ | 52,122 | | | $ | 766,414 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Harsco Corporation Stockholders’ Equity | | | | |
(In thousands, except share amounts) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | |
| Issued | | Treasury | | | | | | Total |
Balances, December 31, 2020 | | $ | 144,288 | | | $ | (843,230) | | | $ | 204,078 | | | $ | 1,797,759 | | | $ | (645,741) | | | $ | 56,245 | | | $ | 713,399 | |
| | | | | | | | | | | | | | |
Net income | | | | | | | | 135 | | | | | 1,430 | | | 1,565 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total other comprehensive income (loss), net of deferred income taxes of $134 | | | | | | | | | | 2,295 | | | (1,066) | | | 1,229 | |
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| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 3,842 shares | | 9 | | | (70) | | | (9) | | | | | | | | | (70) | |
Vesting of restricted stock units and other stock grants, net 144,967 shares | | 312 | | | (1,850) | | | (312) | | | | | | | | | (1,850) | |
Vesting of performance share units, net 69,127 shares | | 155 | | | (1,032) | | | (155) | | | | | | | | | (1,032) | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 3,342 | | | | | | | | | 3,342 | |
Balances, March 31, 2021 | | 144,764 | | | (846,182) | | | 206,944 | | | 1,797,894 | | | (643,446) | | | 56,609 | | | 716,583 | |
Net income | | | | | | | | 13,388 | | | $ | — | | | 1,692 | | | 15,080 | |
Cash dividends declared: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | (3,094) | | | (3,094) | |
| | | | | | | | | | | | | | |
Total other comprehensive income, net of deferred income taxes of $34 | | | | | | | | | | 17,240 | | | 673 | | | 17,913 | |
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| | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Stock appreciation rights exercised, net 13,061 shares | | 28 | | | (219) | | | (28) | | | | | | | | | (219) | |
Vesting of restricted stock units and other stock grants, net 34,986 shares | | 44 | | | | | (44) | | | | | | | | | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 3,120 | | | | | | | | | 3,120 | |
Balances, June 30, 2021 | | 144,836 | | | (846,401) | | | 209,992 | | | 1,811,282 | | | (626,206) | | | 55,880 | | | 749,383 | |
Net income (loss) | | | | | | | | 7,564 | | | $ | — | | | 2,264 | | | 9,828 | |
Cash dividends declared: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | (9) | | | (9) | |
| | | | | | | | | | | | | | |
Total other comprehensive income, net of deferred income taxes of $(2,425) | | | | | | | | | | (8,553) | | | (444) | | | (8,997) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Vesting of restricted stock units and other stock grants, net 10,824 shares | | 20 | | | (101) | | | (20) | | | | | | | | | (101) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Amortization of unearned portion of stock-based compensation, net of forfeitures | | | | | | 3,123 | | | | | | | | | 3,123 | |
Balances, September 30, 2021 | | $ | 144,856 | | | $ | (846,502) | | | $ | 213,095 | | | $ | 1,818,846 | | | $ | (634,759) | | | $ | 57,691 | | | $ | 753,227 | |
See accompanying notes to unaudited condensed consolidated financial statements.
HARSCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The Company has prepared these unaudited condensed consolidated financial statements in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the SEC. Accordingly, the unaudited condensed consolidated financial statements do not include all information and disclosure required by U.S. GAAP for annual financial statements. The December 31, 20192020 Condensed Consolidated Balance Sheet information contained in this Quarterly Report on Form 10-Q was derived from the 20192020 audited consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair statement are reflected in the unaudited condensed consolidated financial statements.
Restricted Cash
The Company had restricted cash of $2.3$4.5 million and $2.5$3.2 million at September 30, 20202021 and December 31, 2019,2020, respectively, and the restrictions are primarily related to collateral provided for certain guarantees of the Company's performance.
Acquisition of ESOL
On April 6, 2020 the Company completed the previously announced acquisition 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 in cash, inclusive of post-closing adjustments. See Note 3, Acquisitions and Dispositions, for additional information.
Segment Reporting
The Company reports information about operating segments using the "management approach," which is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance. The Company's reportable segments are identified based upon differences in products, service and markets served. The operations of ESOL are combined and included as part of the Harsco Clean Earth Segment.
Impact of COVID-19
Beginning in early 2020, overall global economic conditions were significantly impacted by COVID-19. The continuing impactCompany operated, since the onset of COVID-19 on the Company varies by end market as well as local conditions (including applicable government mandates) and is continually evolving. The ultimate duration and impact of COVID-19 on the Company and its customers' operations is presently unclear, though the Company continues to operatepandemic, as a provider of certain essential services in the U.S. and other countries. The Companycountries and overall business conditions have strengthened since the second quarter of 2020. And while COVID-19 continues to take significantimpact various lines of business within the Company and proactive actions to protect all stakeholderscertain operations including as a result of subsequent supply-chain challenges and to minimizelabor-market tightness, the operational and financial impacts of COVID-19 where possible.Company expects that business conditions will improve meaningfully in 2021 compared with 2020.
The Company did not record any long-lived asset impairments, indefinite-lived asset impairments, goodwill impairments, significant inventory write-downs or incremental accounts receivable reserves for current expected credit losses during the three months or nine months ended September 30, 2020, however2021. However, should economic conditions deteriorate, including as a result of COVID-19 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.
Discontinued Operations
In January 2020 the Company sold IKG and, together with the 2019 sales of AXC and PK, this completed the divestiture of the former Harsco Industrial Segment originally announced in May 2019. These disposals represent a strategic shift and accelerated the transformation of the Company's portfolio of businesses into a leading provider of environmental solutions and services. As a result of these disposals (i) the carrying value of the remaining assets and liabilities of the Harsco Industrial Segment were classified as Assets held-for-sale and Liabilities of assets held-for-sale on the Company's December 31, 2019 Condensed Consolidated Balance Sheet; (ii) the operating results of the Harsco Industrial Segment, costs directly related to the disposals, an allocation of interest expense associated with mandatory debt repayments required as a result of the disposals and the write-off of deferred financing costs resulting from the mandatory repayment have been reflected in the Company's Condensed Consolidated Statements of Operations as discontinued operations for all periods presented; and (iii) all disclosures have been updated to reflect these changes. See Note 3, Acquisitions and Dispositions, for additional information.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with current year classifications.
2. Recently Adopted and Recently Issued Accounting Standards
The following accounting standards have been adopted in 2020:2021:
On January 1, 20202021 the Company adopted changes issued by the FASB which updated the impairment model for credit losses by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. Provisions for receivables will be recorded as Allowance for expected credit losses, replacing the previously utilized Allowance for doubtful accounts. In addition, these changes required certain expanded disclosures. Other than changes in disclosure, these changes did not have a material impact on the Company's condensed consolidated financial statements as the calculation of expected credit losses did not yield results that were materially different from the methodology previously utilized by the Company. See Note 4, Accounts Receivable and Note Receivable for additional information.
On January 1, 2020 the Company adopted changes issued by the FASB that removed the second step of the annual goodwill impairment test, which required a hypothetical purchase price allocation. The changes provide that the amount of goodwill impairment will be equal to the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance remains largely unchanged. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. These changes did not have a material impact on the Company's condensed consolidated financial statements.
On January 1, 2020 the Company adopted changes issued by the FASB which modified the disclosure requirements for fair value measurements. The amendments in this update remove the requirement to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; and the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. The changes require disclosure of changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Other than required expanded disclosures, the adoption of these changes did not have a material impact on the Company's condensed consolidated financial statements.
The following accounting standards have been issued and become effective for the Company at a future date:
In December 2019 the FASB issued changes which are intended to reduce complexity and simplify the accounting for income taxes in accordance with U.S. GAAP by removing certain exceptions related to investments, intraperiod allocations and interim calculations and clarifying existing guidance to improve consistent application. These changes did not have a material impact on the Company's condensed consolidated financial statements.
The changesfollowing accounting standards have been issued and become effective for the Company on January 1, 2021. Management does not believe these changes will haveat a material impact on its condensed consolidated financial statements.
future date:
In March 2020 the FASB issued changes that provide companies with optional guidance to ease the potential accounting burden associated with transitioning from reference rates that are expected to be discontinued. In response to the concerns about risks of IBORs and, particularly, the risk of cessation of LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The changes provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued additional clarification changes. The changes canmust be adopted no later than December 31, 2022 with early adoption permitted. Management does not believe these changes will have a material impact on its condensed consolidated financial statements.
In August 2020, the FASB issued changes which simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The changes must be
adopted no later than January 1, 2022, with early adoption permitted. Management has concluded that this standard will not have an impact on its condensed consolidated financial statements.
3. Acquisitions and Dispositions
ESOL
On April 6, 2020 the Company completed the previously announced acquisition of 100% of ESOL, an established hazardous waste transportation, processing and services provider with a comprehensive portfolio of disposal solutions for customers primarily across the industrial, retail and healthcare markets from Stericycle, Inc. for $429.0 million of cash consideration, inclusive of post-closing adjustments. In addition, as part of the acquisition, the Company entered into a non-compete agreement with Stericycle, Inc. Concurrent to the ESOL acquisition, the Company entered into an agreement with Stericycle Inc. related to certain Stericycle, Inc. customers who receive services from both ESOL and other Stericycle, Inc. businesses under a single contractual arrangement. The revenue pertaining to services rendered to these customers are invoiced centrally through Stericycle, Inc. billing systems and ESOL's portion of the revenue, less a management fee, is then distributed to the Company.
The preliminary fair value recorded for the assets acquired and liabilities assumed for ESOL is as follows:
| | | Preliminary Valuation | | Final |
(In millions) | (In millions) | | April 6 2020 | | Measurement Period Adjustments | | September 30 2020 | (In millions) | | April 6 2020 | | Measurement Period Adjustments | | September 30 2021 |
Cash and cash equivalents | Cash and cash equivalents | | $ | 0.4 | | | $ | 0 | | | $ | 0.4 | | Cash and cash equivalents | | $ | 0.4 | | | $ | — | | | $ | 0.4 | |
Trade accounts receivable | Trade accounts receivable | | 124.1 | | | (0.9) | | | 123.2 | | Trade accounts receivable | | 124.1 | | | (1.5) | | | 122.6 | |
Inventory | Inventory | | 5.0 | | | 0 | | | 5.0 | | Inventory | | 5.0 | | | — | | | 5.0 | |
Other current assets | Other current assets | | 0.7 | | | (0.4) | | | 0.3 | | Other current assets | | 0.7 | | | (0.7) | | | — | |
Property, plant and equipment | Property, plant and equipment | | 105.3 | | | 0 | | | 105.3 | | Property, plant and equipment | | 105.3 | | | (3.9) | | | 101.4 | |
Right-of-use assets | Right-of-use assets | | 56.0 | | | 0 | | | 56.0 | | Right-of-use assets | | 56.0 | | | — | | | 56.0 | |
Goodwill | Goodwill | | 152.0 | | | (8.1) | | | 143.9 | | Goodwill | | 152.0 | | | 1.3 | | | 153.3 | |
Intangible assets | Intangible assets | | 161.0 | | | 0 | | | 161.0 | | Intangible assets | | 161.0 | | | — | | | 161.0 | |
Other assets | Other assets | | 0.2 | | | 0 | | | 0.2 | | Other assets | | 0.2 | | | — | | | 0.2 | |
Accounts payable | Accounts payable | | (48.6) | | | (0.4) | | | (49.0) | | Accounts payable | | (48.6) | | | (1.5) | | | (50.1) | |
Accrued expenses | Accrued expenses | | (17.5) | | | 0 | | | (17.5) | | Accrued expenses | | (17.5) | | | (1.8) | | | (19.3) | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | | (16.6) | | | 0 | | | (16.6) | | Current portion of operating lease liabilities | | (16.6) | | | — | | | (16.6) | |
Other current liabilities | Other current liabilities | | (6.4) | | | 0 | | | (6.4) | | Other current liabilities | | (6.4) | | | (0.2) | | | (6.6) | |
Environmental liabilities | Environmental liabilities | | (24.4) | | | 0 | | | (24.4) | | Environmental liabilities | | (24.4) | | | — | | | (24.4) | |
Deferred income taxes | Deferred income taxes | | (15.5) | | | 0 | | | (15.5) | | Deferred income taxes | | (15.5) | | | (1.5) | | | (17.0) | |
Operating lease liabilities | Operating lease liabilities | | (39.4) | | | 0 | | | (39.4) | | Operating lease liabilities | | (39.4) | | | — | | | (39.4) | |
Total identifiable net assets of ESOL | Total identifiable net assets of ESOL | | 436.3 | | | (9.8) | | | 426.5 | | Total identifiable net assets of ESOL | | 436.3 | | | (9.8) | | | 426.5 | |
Non-compete agreement | Non-compete agreement | | 2.5 | | | — | | | 2.5 | | Non-compete agreement | | 2.5 | | | — | | | 2.5 | |
Total identifiable net assets of ESOL, including non-compete agreement | Total identifiable net assets of ESOL, including non-compete agreement | | $ | 438.8 | | | $ | (9.8) | | | $ | 429.0 | | Total identifiable net assets of ESOL, including non-compete agreement | | $ | 438.8 | | | $ | (9.8) | | | $ | 429.0 | |
The goodwill is primarily attributed to expected operational efficiencies and synergies from the expanded geographical scale of hazardous waste processing facilities resulting from combining the ESOL business with the existing Clean Earth business of the Company, as well as the value associated with the assembled workforce of ESOL. The Company expects $36.8 million of goodwill to be deductible for income tax purposes through 2030.
The following table details the preliminary valuation of identifiable intangible assets and amortization periods for ESOL and the non-compete agreement entered into by the Company upon acquisition of ESOL:
| | | Preliminary Valuation | | Final |
(Dollars in millions) | (Dollars in millions) | | Weighted-Average Amortization Period | | April 6 2020 | | Measurement Period Adjustments | | September 30 2020 | (Dollars in millions) | | Weighted-Average Amortization Period | | April 6 2020 | | Measurement Period Adjustments | | September 30 2021 |
Permits and rights | Permits and rights | | 22 years | | $ | 138.0 | | | $ | 0 | | | $ | 138.0 | | Permits and rights | | 22 years | | $ | 138.0 | | | $ | — | | | $ | 138.0 | |
Customer relationships | Customer relationships | | 10 years | | 23.0 | | | 0 | | | 23.0 | | Customer relationships | | 10 years | | 23.0 | | | — | | | 23.0 | |
Total identifiable intangible assets of ESOL | Total identifiable intangible assets of ESOL | | 161.0 | | | 0 | | | 161.0 | | Total identifiable intangible assets of ESOL | | 161.0 | | | — | | | 161.0 | |
Non-compete agreement | Non-compete agreement | | 4 years | | 2.5 | | | — | | | 2.5 | | Non-compete agreement | | 4 years | | 2.5 | | | — | | | 2.5 | |
Total identifiable intangible assets acquired | Total identifiable intangible assets acquired | | $ | 163.5 | | | $ | 0 | | | $ | 163.5 | | Total identifiable intangible assets acquired | | $ | 163.5 | | | $ | — | | | $ | 163.5 | |
The Company valued the identifiable intangible assets using methodologies under the income approach including the multi-period excess earnings method, the distributor method, and the with-and-without method. The purchase price allocation for ESOL is not final and the fair value of intangible assets and goodwill may vary significantly from those reflected in the Company's condensed consolidated financial statements at September 30, 2020.
ESOL contributed revenue of $236.7 million and operating income of $4.7 million for the nine months ended September 30, 2020. The operations of ESOL have been combined and included as part of the Harsco Clean Earth Segment.
The three and nine months ended September 30, 2020 include ESOL direct acquisition and integration costs of $10.6 million and $41.0 million, respectively, which are included in the Selling, general and administrative expenses, within the Corporate function, in the Company's Condensed Consolidated Statements of Operations. In addition to the acquisition and integration costs reflected in the Company's Condensed Consolidated Statements of Operations, the debt issuance costs associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, as Long-term debt on the Company's Condensed 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 waste,wastes, contaminated materials and dredged volumes, for an enterprise valuation of approximately $625 million on a cash free, debt free basis, subject to normal working capital adjustments. The Company transferred approximately $628 million of cash consideration and agreed to reimburse the sellers for any usage of assumed net operating losses in a post-closing period for up to five years. During the three months ended September 30, 2020, the Company expensed an additional $2.4 million related to the expected reimbursement of these net operating losses of which the present value is now estimated at approximately $11 million. See Footnote 17, Other Expenses, net, for additional details.
The fair value recorded for the assets acquired and liabilities assumed for Clean Earth is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Final |
(In millions) | | June 28 2019 | | Measurement Period Adjustments (a) | | September 30 2020 |
Cash and cash equivalents (b) | | $ | 42.8 | | | $ | (39.2) | | | $ | 3.6 | |
Trade accounts receivable, net | | 63.7 | | | (1.2) | | | 62.5 | |
Other receivables | | 0.8 | | | 1.3 | | | 2.1 | |
Other current assets | | 8.7 | | | (1.4) | | | 7.3 | |
Property, plant and equipment | | 75.6 | | | 1.4 | | | 77.0 | |
Right-of-use assets | | 14.4 | | | 11.4 | | | 25.8 | |
Goodwill | | 313.8 | | | 16.8 | | | 330.6 | |
Intangible assets | | 261.1 | | | (18.9) | | | 242.2 | |
Other assets | | 4.0 | | | (2.8) | | | 1.2 | |
Accounts payable | | (23.0) | | | (0.1) | | | (23.1) | |
Acquisition consideration payable (b) | | (39.2) | | | 39.2 | | | 0 | |
| | | | | | |
| | | | | | |
Other current liabilities | | (18.0) | | | (1.7) | | | (19.7) | |
Net deferred taxes liabilities | | (51.2) | | | 5.5 | | | (45.7) | |
Operating lease liabilities | | (11.1) | | | (8.4) | | | (19.5) | |
Other liabilities | | (6.5) | | | (2.1) | | | (8.6) | |
Total identifiable net assets of Clean Earth | | $ | 635.9 | | | $ | (0.2) | | | $ | 635.7 | |
(a) The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
(b) Acquisition consideration payable represents a portion of the cash consideration not paid out until July 2019.
The goodwill is attributable to strategic benefits, including enhanced operational and financial scale, as well as product and market diversification that the Company expects to realize. The Company expects $16.3 million of goodwill to be deductible for income tax purposes through 2033.
The following table details the valuation of identifiable intangible assets and amortization periods for Clean Earth:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Final |
(In millions) | | Weighted-Average Amortization Period | | Preliminary Valuation June 28, 2019 | | Measurement Period Adjustments (c) | | September 30 2020 |
Permits | | 18 years | | $ | 176.1 | | | $ | (6.0) | | | $ | 170.1 | |
Customer relationships | | 8 years | | 33.4 | | | (12.9) | | | 20.5 | |
Air rights | | Usage based (d) | | 25.6 | | | 0 | | | 25.6 | |
Trade names | | 12 years | | 26.0 | | | 0 | | | 26.0 | |
| | | | | | | | |
Total identifiable intangible assets of Clean Earth | | | | $ | 261.1 | | | $ | (18.9) | | | $ | 242.2 | |
(c) The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
(d) The Company estimates that based on current usage that the expected useful life would be 27 years.
The Company valued the identifiable intangible assets using an income-based approach that utilized either the multi-period excess earnings method or the relief from royalty method.
The three and nine months ended September 30, 2019 include Clean Earth direct acquisition and integration costs of $2.0 million and $14.5 million, respectively which are included in Selling, general and administrative expenses, within the Corporate function, in the Company’s Condensed Consolidated Statements of Operations.
Pro forma financial information
The pro forma information below gives effect to the Clean Earth acquisition as if it had been completed on January 1, 2018 and the ESOL acquisition as if it had been completed on January 1, 2019. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisitionsacquisition been completed on the above dates,date, nor is it necessarily indicative of future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitionsacquisition and does not reflect the additional revenue opportunities following the acquisitions.acquisition. The pro forma information below includes the adjustments necessary to reflect additional depreciation and amortization expense based on the estimated fair value and useful lives of intangible assets and fixed assets acquired; includes additional interest expense of approximately $4.7 million for the nine months ended September 30, 2020 and $5.6 million and $34.9 million for the three and nine months ended September 30, 2019, respectively, on the acquisition related borrowings used to finance the acquisitionsacquisition and excludes certain directly attributable acquisition and integration costs and historic interest expense. These pro forma adjustments are subject to change as additional analysis is performed. The values assigned to the assets acquired and liabilities assumed are based on preliminary valuations, for the ESOL acquisition, and are subject to change as the Company obtains additional information during the remaining measurement period.costs. In addition, the historical ESOL results include $8.9 million for the nine months ended September 30, 2020 and $8.6 million and $26.5 million for the three and nine months ended September 30, 2019, respectively, of corporate expenses charged to ESOL from Stericycle.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 |
(In millions) | | 2020 | | 2019 | | 2020 | | 2019 |
Pro forma revenues | | $ | 509.4 | | | $ | 572.7 | | | $ | 1,486.2 | | | $ | 1,650.3 | |
| | | | | | | | |
Pro forma net income attributed to Harsco Corporation (including discontinued operations) (e) | | (1.8) | | | 434.9 | | | 1.0 | | | 440.9 | |
| | | | | | | | | | | | |
| | | | Nine Months Ended |
| | | | September 30 |
(In millions) | | | | 2020 | | |
Pro forma revenues | | | | $ | 1,486.2 | | | |
| | | | | | |
Pro forma net income (loss) attributed to Harsco Corporation (including discontinued operations) (a) | | | | 1.0 | | | |
(e)(a) Pro forma net income includes the after tax gain on the sale of IKG of approximately $9 million for the three and nine months ended September 30, 2019 includes a $417.5 million after-tax gain on the sale of AXC.2020.
Harsco Industrial Segment
In January 2020 the Company sold IKG, for $85.0 million, including a note receivable with a face value of $40.0 million (initial fair value $34.3 million), and recognized an $18.4 million pre-tax gain on sale (or approximately $9 million after-tax). This disposal, alongtogether with the disposals2019 sales of AXC and PK, in 2019, represent a strategic shift and acceleratesthis completed the transformationdivestiture of the Company's portfolio of businesses into a global, market-leading, single-thesis environmental solutions platform. See Note 4, Accounts Receivable and Note Receivable, for additional information related to the note receivable.
former Harsco Industrial Segment originally announced in May 2019. The Harsco Industrial Segment has historically been a separate reportable segment with primary operations in North America and Latin America. In accordance with U.S. GAAP, the results of the former Harsco Industrial Segment are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the three and nine months ended September 30, 2020 and 2019.2020.
Certain key selected financial information included in net income (loss) from discontinued operations for the former Harsco Industrial Segment is as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In millions) | (In millions) | | 2020 | | 2019 | | 2020 | | 2019 | (In millions) | | 2021 | | 2020 | | 2021 | | 2020 |
Amounts for the former Harsco Industrial Segment: | Amounts for the former Harsco Industrial Segment: | Amounts for the former Harsco Industrial Segment: |
Total revenues | Total revenues | | $ | 0 | | | $ | 39,855 | | | $ | 10,203 | | | $ | 274,037 | | Total revenues | | $ | — | | | $ | — | | | $ | — | | | $ | 10,203 | |
Cost of products sold | Cost of products sold | | 0 | | | 28,174 | | | 8,082 | | | 201,188 | | Cost of products sold | | — | | | — | | | — | | | 8,082 | |
Gain on sale from discontinued business | Gain on sale from discontinued business | | 0 | | | 527,980 | | | 18,371 | | | 527,980 | | Gain on sale from discontinued business | | �� | | | — | | | — | | | 18,371 | |
Income (loss) from discontinued business | Income (loss) from discontinued business | | (716) | | | 803 | | | (593) | | | 24,877 | | Income (loss) from discontinued business | | (856) | | | (716) | | | (2,859) | | | (593) | |
Additional amounts allocated to the former Harsco Industrial Segment: | Additional amounts allocated to the former Harsco Industrial Segment: | Additional amounts allocated to the former Harsco Industrial Segment: |
Selling, general and administrative expenses (f)(b) | Selling, general and administrative expenses (f)(b) | | $ | 521 | | | $ | 1,994 | | | $ | 1,710 | | | $ | 5,521 | | Selling, general and administrative expenses (f)(b) | | $ | 856 | | | $ | 521 | | | $ | 2,859 | | | $ | 1,710 | |
Interest expense (g) | | 0 | | | 0 | | | 0 | | | 11,237 | | |
Loss on early extinguishment of debt (h) | | 0 | | | 5,314 | | | 0 | | | 5,314 | | |
|
(f)(b) The Company has allocated directly attributable transaction costs to discontinued operations. In addition, this caption includes costs directly attributable to retained contingent liabilities of the Harsco Industrial Segment.
(g) The Company has allocated interest expense, including a portion of the amount reclassified into income for the Company's interest rate swaps and amortization of deferred financing costs resulting from the AXC disposal, as part of discontinued operations.
(h) The Company has allocated the $5.3 million write-off of deferred financing costs to discontinued operations as it is directly attributable to the mandatory repayment of the Original Term Loan that resulted from the AXC disposal.
The Company has retained corporate overhead expenses previously allocated to the Harsco Industrial Segment of $0.7 million for the three months ended September 30, 2019 and $3.4 million for the nine months ended September 30, 2019, as part of Selling, general and administrative expenses, on the Company's Condensed Consolidated Statements of Operations.
The following is selected financial information included on the Company's Condensed Consolidated Statements of Cash Flows attributable to the former Harsco Industrial Segment:
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30 |
(In millions) | | 2020 | | 2019 |
Non-cash operating items | | | | |
Depreciation and amortization | | $ | 0 | | | $ | 3,301 | |
Cash flows from investing activities | | | | |
Purchases of property, plant and equipment | | 106 | | | 6,151 | |
4. Accounts Receivable and Note Receivable
Accounts receivable are stated at net realizable value which represents the face value of the receivable less an allowance for expected credit losses. The allowance for expected credit losses is maintained for expected lifetime losses resulting from the inability or unwillingness of customers to make required payments.The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company generally assesses future economic conditions for a period which corresponds with the contractual life of its accounts receivable. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.
Prior to the adoption of the expected credit loss allowance methodology on January 1, 2020, the Company established an allowance for doubtful accounts based upon a specific-identification method as well as historical collection experience, as appropriate.
4. Accounts Receivable and Note Receivable
Accounts receivable consist of the following:
| (In thousands) | (In thousands) | | September 30 2020 | | December 31 2019 | (In thousands) | | September 30 2021 | | December 31 2020 |
Trade accounts receivable | Trade accounts receivable | | $ | 409,928 | | | $ | 323,502 | | Trade accounts receivable | | $ | 434,295 | | | $ | 414,891 | |
Less: Allowance for expected credit losses and doubtful accounts (a) (b) | | (8,934) | | | (13,512) | | |
Less: Allowance for expected credit losses | | Less: Allowance for expected credit losses | | (8,398) | | | (7,501) | |
| Trade accounts receivable, net | Trade accounts receivable, net | | $ | 400,994 | | | $ | 309,990 | | Trade accounts receivable, net | | $ | 425,897 | | | $ | 407,390 | |
| Other receivables (c)(a) | Other receivables (c)(a) | | $ | 38,325 | | | $ | 21,265 | | Other receivables (c)(a) | | $ | 39,454 | | | $ | 34,253 | |
(a) The decrease in the allowance for expected credit losses and doubtful accounts is the final write-off of previously fully-reserved balances in the Harsco Environmental Segment.
(b) Upon the acquisition of ESOL, trade accounts receivable totaling $136.2 million were recorded at a fair value of $123.2 million as of the acquisition date, due primarily to expected credit losses as of the acquisition date of $13.0 million which were netted against the gross receivable balance as of the acquisition date.
(c) Other receivables include employee receivables, insurance receivable, tax claims and refunds and other miscellaneous items not included in Trade accounts receivable, net.
The change in the provision for expected credit losses and doubtful accounts related to trade accounts receivable was as follows:
| | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Provision for expected credit losses and doubtful accounts related to trade accounts receivable | | $ | 861 | | | $ | 1,116 | | | $ | 1,098 | | | $ | 6,539 | | |
(Benefit) provision for expected credit losses and doubtful accounts related to trade accounts receivable | | (Benefit) provision for expected credit losses and doubtful accounts related to trade accounts receivable | | $ | (145) | | | $ | 861 | | | $ | 1,087 | | | $ | 1,098 | |
At September 30, 20202021 approximately $5.6$12.0 million of the Company's trade accounts receivable were past due by twelve months or more. Approximately $1.1$7.2 million of this amount is effectively reserved, and collection of the remaining balance is still ultimately expected.
In January 2020 the Company sold IKG for $85.0 million including cash and a note receivable, subject to post-closing adjustments. The note receivable from the buyer has a face value of $40.0 million, bearing interest at 2.50%, that is paid in kind and matures on January 31, 2027. Any unpaid principal, along with any accrued but unpaid interest is payable at maturity. Prepayment is required in case of a change in control or a percentage of excess cash flow, as defined in the note receivable agreement. Because there are no scheduled payments under the terms of the note receivable, the balance is not classified as current as of September 30, 20202021 and is included in the caption Other assets on the Condensed Consolidated Balance Sheet. The initial fair value of the note receivable was $34.3 million which was calculated using an average of various discounted cash flow scenarios based on anticipated timing of repayments (Level 3) and was a non-cash transaction. The note receivable is subsequently measured at amortized cost. Key inputs into the valuation model include: projected timing and amount of cash flows, pro forma debt rating, option-adjusted spread and U.S. Treasury spot rate. During the nine months ended September 30, 2021, the Company received a payment of $6.4 million related to excess cash flow. At September 30, 20202021 the amortized cost of the note receivable was $35.4$30.6 million, compared with a fair value of $35.6$31.8 million.
| (In thousands) | (In thousands) | | September 30 2020 | | December 31 2019 | (In thousands) | | September 30 2021 | | December 31 2020 |
Note receivable | Note receivable | | $ | 35,389 | | | $ | 0 | | Note receivable | | $ | 30,631 | | | $ | 35,806 | |
5. Inventories
Inventories consist of the following:
| (In thousands) | (In thousands) | | September 30 2020 | | December 31 2019 | (In thousands) | | September 30 2021 | | December 31 2020 |
Finished goods | Finished goods | | $ | 14,736 | | | $ | 14,550 | | Finished goods | | $ | 9,052 | | | $ | 8,505 | |
Work-in-process | Work-in-process | | 13,489 | | | 13,088 | | Work-in-process | | 23,793 | | | 29,005 | |
| Raw materials and purchased parts | Raw materials and purchased parts | | 111,754 | | | 104,488 | | Raw materials and purchased parts | | 95,156 | | | 105,306 | |
Stores and supplies | Stores and supplies | | 30,058 | | | 24,865 | | Stores and supplies | | 35,071 | | | 30,197 | |
Total inventories | Total inventories | | $ | 170,037 | | | $ | 156,991 | | Total inventories | | $ | 163,072 | | | $ | 173,013 | |
During 2016 the Company recognized an initial estimated forward loss provision related to the contracts with SBB of $45.1 million. The Company recorded an additional forward loss provision of $1.8 million during 2018. At September 30,
2020 the entire remaining estimated forward loss provision of $6.6 million is included as Other current liabilities on the Company's Condensed Consolidated Balance Sheets. The estimated forward loss provision represents the Company's best estimate based on currently available information. It is possible that the Company's overall estimate of costs to complete these contracts may increase, which would result in an additional estimated forward loss provision at such time.
The Company recognized $11.8 million and $5.7 million of revenues for the contracts with SBB at 0 margin, on an over time basis, utilizing a cost-to-cost method for the three months ended September 30, 2020 and 2019, respectively, and $29.5 million and $16.4 million for the nine months ended September 30, 2020 and 2019, respectively. Consolidated product revenue gross margins were not significantly impacted by the revenue recognized under the SBB contracts for the three and nine months ended September 30, 2020 and 2019. The Company has substantially completed the first contract and is approximately 65% complete on the second contract with SBB as of September 30, 2020.
6. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| (In thousands) | (In thousands) | | September 30 2020 | | December 31 2019 | (In thousands) | | September 30 2021 | | December 31 2020 |
Land | Land | | $ | 75,777 | | | $ | 30,409 | | Land | | $ | 75,469 | | | $ | 75,559 | |
Land improvements | Land improvements | | 18,748 | | | 19,155 | | Land improvements | | 19,730 | | | 20,166 | |
Buildings and improvements | Buildings and improvements | | 225,406 | | | 182,795 | | Buildings and improvements | | 253,659 | | | 249,954 | |
Machinery and equipment | Machinery and equipment | | 1,511,120 | | | 1,518,652 | | Machinery and equipment | | 1,564,936 | | | 1,597,592 | |
Uncompleted construction | Uncompleted construction | | 64,408 | | | 55,592 | | Uncompleted construction | | 69,206 | | | 42,185 | |
Gross property, plant and equipment | Gross property, plant and equipment | | 1,895,459 | | | 1,806,603 | | Gross property, plant and equipment | | 1,983,000 | | | 1,985,456 | |
Less: Accumulated depreciation | Less: Accumulated depreciation | | (1,254,572) | | | (1,244,817) | | Less: Accumulated depreciation | | (1,304,675) | | | (1,317,247) | |
Property, plant and equipment, net | Property, plant and equipment, net | | $ | 640,887 | | | $ | 561,786 | | Property, plant and equipment, net | | $ | 678,325 | | | $ | 668,209 | |
In the third quarter of 2020, a customer of the Harsco Environmental Segment in China ceased steel making operations at its steel mill site in order to relocate the operations to a new site, as a result of a government mandate to improve environmental conditions of the area. The Company will continue to provide services to the same customer at the new site. The net book value of the idled equipment associated with the previous location is approximately $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 expected to be protracted. While the customer has initially indicated that they will not provide compensation, the Company disagrees with their interpretation and is evaluating its legal position in response. In addition, there may be other avenues of pursuing recovery, including seeking relief directly from the local government. At this point, considering the ongoing discussions with the customer, and other avenues, the Company believes it will recover the book value of the equipment and thus does not believe it has an asset impairment as of September 30, 2021. However, the Company will continue to evaluate changes in facts and circumstances and record any impairment charge when and if indicated.
7. Leases
The components of lease expense were as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Finance leases: | Finance leases: | | | | | | | | | Finance leases: | | | | | | | | |
Amortization expense | Amortization expense | | $ | 377 | | | $ | 325 | | | $ | 1,115 | | | $ | 911 | | Amortization expense | | $ | 743 | | | $ | 377 | | | $ | 1,692 | | | $ | 1,115 | |
Interest on lease liabilities | Interest on lease liabilities | | 43 | | | 27 | | | 139 | | | 68 | | Interest on lease liabilities | | 129 | | | 43 | | | 340 | | | 139 | |
Operating leases | Operating leases | | 8,558 | | | 4,391 | | | 21,745 | | | 11,518 | | Operating leases | | 8,554 | | | 8,558 | | | 25,296 | | | 21,745 | |
| Variable and short-term lease expense | Variable and short-term lease expense | | 11,572 | | | 6,759 | | | 29,169 | | | 16,367 | | Variable and short-term lease expense | | 12,756 | | | 11,572 | | | 38,952 | | | 29,169 | |
Sublease income | Sublease income | | (51) | | | 0 | | | (150) | | | 0 | | Sublease income | | (1) | | | (51) | | | (52) | | | (150) | |
Total lease expense from continuing operations | Total lease expense from continuing operations | | $ | 20,499 | | | $ | 11,502 | | | $ | 52,018 | | | $ | 28,864 | | Total lease expense from continuing operations | | $ | 22,181 | | | $ | 20,499 | | | $ | 66,228 | | | $ | 52,018 | |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30 |
(In thousands) | | 2020 | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Cash flows from operating activities - Operating leases | | $ | 20,512 | | | $ | 10,881 | |
| | | | |
Cash flows from financing activities - Finance leases | | 997 | | | 953 | |
ROU assets obtained in exchange for lease obligations: | | | | |
Operating leases (a) | | $ | 62,507 | | | $ | 57,607 | |
Finance leases | | 1,613 | | | 1,671 | |
(a) Cash flows for the nine months ended September 30, 2020 include ROU assets of approximately $56 million that were recorded upon the acquisition of ESOL. Cash flows for nine months ended September 30, 2019 include ROU assets of approximately $34 million that were recorded upon adoption at January 1, 2019 and approximately $21 million that were recorded upon the acquisition of Clean Earth. See Note 3, Acquisitions and Dispositions, for additional information.. | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30 |
(In thousands) | | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Cash flows from operating activities - Operating leases | | $ | 24,747 | | | $ | 20,512 | |
| | | | |
Cash flows from financing activities - Finance leases | | 1,978 | | | 997 | |
ROU assets obtained in exchange for lease obligations: | | | | |
Operating leases | | $ | 29,190 | | | $ | 62,507 | |
Finance leases | | 5,911 | | | 1,613 | |
Supplemental balance sheet information related to leases was as follows:
| (In thousands) | (In thousands) | | September 30 2020 | | December 31 2019 | (In thousands) | | September 30 2021 | | December 31 2020 |
Operating Leases: | Operating Leases: | | | Operating Leases: | | |
Operating lease ROU assets | Operating lease ROU assets | | $ | 96,800 | | | $ | 52,065 | | Operating lease ROU assets | | $ | 98,841 | | | $ | 96,849 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | | 26,577 | | | $ | 12,544 | | Current portion of operating lease liabilities | | 25,112 | | | 24,862 | |
Operating lease liabilities | Operating lease liabilities | | 67,995 | | | 36,974 | | Operating lease liabilities | | 72,090 | | | 69,860 | |
| Finance Leases: | Finance Leases: | | Finance Leases: | |
| Property, plant and equipment, net | Property, plant and equipment, net | | $ | 4,179 | | | $ | 3,519 | | Property, plant and equipment, net | | $ | 12,508 | | | $ | 8,434 | |
Current maturities of long-term debt | Current maturities of long-term debt | | 1,335 | | | $ | 1,237 | | Current maturities of long-term debt | | 2,724 | | | 1,683 | |
Long-term debt | Long-term debt | | 2,903 | | | 2,218 | | Long-term debt | | 10,011 | | | 6,867 | |
|
Supplemental additional information related to leases was as follows:
| | | September 30 2020 | | December 31 2019 | | September 30 2021 | | December 31 2020 |
| Other information: | Other information: | | | | | Other information: | | | | |
Weighted average remaining lease term - Operating leases (in years) | Weighted average remaining lease term - Operating leases (in years) | | 8.10 | | 11.57 | Weighted average remaining lease term - Operating leases (in years) | | 7.44 | | 8.00 |
Weighted average remaining lease term - Finance leases (in years) | Weighted average remaining lease term - Finance leases (in years) | | 3.73 | | 4.01 | Weighted average remaining lease term - Finance leases (in years) | | 6.41 | | 8.20 |
Weighted average discount rate - Operating leases | Weighted average discount rate - Operating leases | | 6.1 | % | | 6.3 | % | Weighted average discount rate - Operating leases | | 5.9 | % | | 6.1 | % |
Weighted average discount rate - Finance leases | Weighted average discount rate - Finance leases | | 4.1 | % | | 4.2 | % | Weighted average discount rate - Finance leases | | 4.9 | % | | 5.1 | % |
Maturities of lease liabilities were as follows:
| (In thousand) | | Operating Leases | | Finance Leases | |
(In thousands) | | (In thousands) | | Operating Leases | | Finance Leases |
Year Ending December 31: | Year Ending December 31: | | | | | Year Ending December 31: | | | | |
2020 (excluding the nine months ended September 30, 2020) | | $ | 8,126 | | | $ | 361 | | |
2021 | | 27,315 | | | 1,330 | | |
2021 (excluding the nine months ended September 30, 2021) | | 2021 (excluding the nine months ended September 30, 2021) | | $ | 8,027 | | | $ | 849 | |
2022 | 2022 | | 20,639 | | | 1,072 | | 2022 | | 28,602 | | | 3,220 | |
2023 | 2023 | | 15,818 | | | 869 | | 2023 | | 22,897 | | | 3,001 | |
2024 | 2024 | | 10,655 | | | 702 | | 2024 | | 16,537 | | | 2,615 | |
After 2024 | | 41,421 | | | 113 | | |
2025 | | 2025 | | 11,284 | | | 1,576 | |
After 2025 | | After 2025 | | 36,936 | | | 3,754 | |
Total lease payments | Total lease payments | | 123,974 | | | 4,447 | | Total lease payments | | 124,283 | | | 15,015 | |
Less: Imputed interest | Less: Imputed interest | | (29,402) | | | (209) | | Less: Imputed interest | | (27,081) | | | (2,280) | |
Total | Total | | $ | 94,572 | | | $ | 4,238 | | Total | | $ | 97,202 | | | $ | 12,735 | |
The Company's leases, excluding short-term leases, have remaining terms of less than one year to 3029 years, some of which include options to extend for up to 10 years, and some of which include options to terminate within one year. As of
September 30, 2020,2021, the Company had additional operating leases for property and equipment that havehad not yet commenced with estimated ROU assets andoperating lease liabilitiesobligations of $4.6approximately $11.8 million to be recognizedrecognize upon the anticipated lease commencementscommencement in the fourth quarter of 20202021 through the second quarter of 2022. There are no material residual value guarantees or material restrictive covenants.covenants in any of the Company's leases.
8. Goodwill and Other Intangible Assets
The following table reflects the changes in carrying amounts of goodwill by segment for the nine months ended September 30, 2020:2021:
| (In thousands) | (In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | Harsco Rail Segment | | Consolidated Totals | (In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | Harsco Rail Segment | | Consolidated Totals |
Balance at December 31, 2019 | | $ | 395,113 | | | $ | 330,230 | | | $ | 13,026 | | | $ | 738,369 | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | | $ | 406,401 | | | $ | 482,647 | | | $ | 13,026 | | | $ | 902,074 | |
Changes to goodwill (a) | Changes to goodwill (a) | | 1,480 | | | 144,283 | | | 0 | | | 145,763 | | Changes to goodwill (a) | | — | | | 1,232 | | | — | | | 1,232 | |
Foreign currency translation | Foreign currency translation | | (2,221) | | | 0 | | | 0 | | | (2,221) | | Foreign currency translation | | (6,578) | | | — | | | — | | | (6,578) | |
Balance at September 30, 2020 | | $ | 394,372 | | | $ | 474,513 | | | $ | 13,026 | | | $ | 881,911 | | |
Balance at September 30, 2021 | | Balance at September 30, 2021 | | $ | 399,823 | | | $ | 483,879 | | | $ | 13,026 | | | $ | 896,728 | |
(a) The changes to goodwill primarily relate to the measurement period adjustments for the ESOL acquisition of ESOL in the Harsco Clean Earth Segment. See Note 3, Acquisitions and Dispositions, and immaterial acquisitions in the Harsco Environmental Segment.Dispositions.
The Company tests for goodwill impairment annually, or more frequently if indicators of impairment exist, or if a decision is made to dispose of a business. The Company performs its annual goodwill impairment test as of October 1 and monitors for triggering events on an ongoing basis. The Company determined that, as of September 30, 2020,2021, no interim goodwill impairment testing was necessary.
The Company has concluded that no triggering event occurred during the three months ended September 30, 2020.2021. However, a prolongedan economic downturn resulting from COVID-19 could impact the Company's future projected cash flows used to estimate fair value, and/or result in a sustained decrease in the Company’sCompany's share price, which could indicate an impairment.
Intangible assets, net, on the Company's Condensed Consolidated Balance Sheets consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
(In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Customer related (b) | | $ | 106,247 | | | $ | 43,572 | | | $ | 143,996 | | | $ | 99,327 | |
Permits | | 308,559 | | | 14,992 | | | 170,322 | | | 4,694 | |
Technology related | | 37,992 | | | 8,187 | | | 36,467 | | | 5,635 | |
Trade names | | 31,698 | | | 4,133 | | | 31,719 | | | 2,182 | |
Air rights | | 26,139 | | | 827 | | | 26,139 | | | 411 | |
Patents | | 177 | | | 126 | | | 249 | | | 168 | |
Non-compete Agreement | | 2,500 | | | 312 | | | 0 | | | 0 | |
Other | | 3,747 | | | 1,228 | | | 3,765 | | | 1,158 | |
Total | | $ | 517,059 | | | $ | 73,377 | | | $ | 412,657 | | | $ | 113,575 | |
(b) In the quarter ended September 30, 2020 fully amortized intangible assets were removed from the gross carrying and accumulated amortization amounts. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
(In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Customer related | | $ | 108,226 | | | $ | 53,757 | | | $ | 109,378 | | | $ | 48,057 | |
Permits | | 308,998 | | | 30,856 | | | 308,705 | | | 18,955 | |
Technology related | | 39,604 | | | 12,363 | | | 40,274 | | | 9,654 | |
Trade names | | 31,876 | | | 6,797 | | | 31,949 | | | 4,834 | |
Air rights | | 26,139 | | | 1,561 | | | 26,139 | | | 1,044 | |
Patents | | 185 | | | 140 | | | 192 | | | 139 | |
Non-compete Agreement | | 2,500 | | | 937 | | | 2,500 | | | 469 | |
Other | | 3,896 | | | 1,475 | | | 3,911 | | | 1,331 | |
Total | | $ | 521,424 | | | $ | 107,886 | | | $ | 523,048 | | | $ | 84,483 | |
Amortization expense for intangible assets was as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | | September 30 | | September 30 | | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Amortization expense for intangible assets | Amortization expense for intangible assets | | $ | 8,272 | | | $ | 5,668 | | | $ | 22,542 | | | $ | 9,508 | | Amortization expense for intangible assets | | $ | 8,115 | | | $ | 8,272 | | | $ | 24,514 | | | $ | 22,542 | |
The estimated amortization expense for the next five fiscal years based on current intangible assets is as follows:
| (In thousands) | (In thousands) | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | (In thousands) | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
Estimated amortization expense (c)(b) | Estimated amortization expense (c)(b) | | $ | 31,200 | | | $ | 32,300 | | | $ | 31,600 | | | $ | 31,600 | | | $ | 31,100 | | Estimated amortization expense (c)(b) | | $ | 32,900 | | | $ | 32,400 | | | $ | 32,300 | | | $ | 31,800 | | | $ | 31,600 | |
(c)(b) These estimated amortization expense amounts do not reflect the potential effect of future foreign currency exchange fluctuations.
9. Debt and Credit Agreements
InOn March 2020 the Company raised $280 million pursuant to the New Term Loan as a new tranche under the existing Senior Secured Credit Facilities. The New Term Loan was fully drawn on April 6, 2020 to partially fund the acquisition of ESOL. See Note 3, Acquisition and Dispositions, for additional information related to the ESOL acquisition. Borrowings under the New Term Loan bear interest at a rate per annum ranging from 150 to 225 basis points over adjusted LIBOR (as defined in the Credit Agreement). The New Term Loan will mature on June 28, 2024. The Company capitalized $1.9 million of fees related to the issuance of the New Term Loan.
In both March 2020 and June 2020,10, 2021, the Company amended theits Senior Secured Credit Facilities to, increaseamong other things, extend the maturity date of the Revolving Credit Facility to March 10, 2026, and to modify aspects of its total net debt to consolidated adjusted EBITDAleverage ratio covenant. AsThe interest rate applicable to the Revolving Credit Facility bears interest at a result of these amendments,rate, depending on total net leverage, ranging from 50 to 150 basis points over base rate or 150 to 250 basis points over LIBOR, subject to a zero floor.
Under the amended agreement, the net debt to consolidated adjusted EBITDA ratio covenant has been increased tois 5.75 through Marchthe end of 2021 and then decreasingdecreases quarterly until reaching 4.754.0 in March 2023.
In addition, the Company issued New Term Loans, as an additional tranche, under the Senior Secured Credit Facilities in an aggregate principal amount of $500 million. The New Term Loans bear interest at a rate per annum of 1.25% over base rate, subject to a zero floor, or 2.25% over LIBOR, subject to a 0.50% floor. The New Term Loans are subject to quarterly amortization of principal of 0.25%, beginning September 30, 2021. The proceeds of the New Term Loans were used to repay in full the outstanding Term Loan A and Term Loan B under the Senior Secured Credit Facilities, which were due on June 28, 2024 and December 2021. There8, 2024, respectively. The New Term Loans mature on March 10, 2028, or earlier, on the date that is no change91 days prior to the previously agreed interest rates as long asmaturity date of the Company's total leverage ratio doesCompany’s 5.75% Senior Notes due 2027 if such Senior Notes are outstanding or have not equal or exceed 4.50,been refinanced at which time it would increase by 25 basis points. such time.
During the three and nine months ended September 30, 2020,2021, the Company recognized $1.9total expenses of $0.2 million of fees and expenses$5.5 million related to the amended Senior Secured Credit Facilities in the caption Unused debt commitment andfees, amendment fees and loss on extinguishment of debt on the Condensed Consolidated Statements of Operations.Operations, including a write-off of $2.7 million of previously recorded deferred financing costs. The Company has capitalized fees of $7.8 million related to the amendment of the Senior Secured Credit Facilities, all of which were paid as of September 30, 2021.
Long-term debt consists of the following:
| | | | | | | | | | | | | | |
(In thousands) | | September 30 2021 | | December 31 2020 |
| | | | |
Senior Secured Credit Facilities: | | | | |
New Term Loan | | $ | 498,750 | | | $ | — | |
Term Loan A | | — | | | 280,000 | |
Term Loan B | | — | | | 218,188 | |
Revolving Credit Facility | | 338,486 | | | 281,000 | |
5.75% Notes, due July 31, 2027 | | 500,000 | | | 500,000 | |
Other financing payable (including finance leases) in varying amounts | | 24,406 | | | 21,344 | |
Total debt obligations | | 1,361,642 | | | 1,300,532 | |
Less: deferred financing costs | | (18,887) | | | (15,767) | |
Total debt obligations, net of deferred financing costs | | 1,342,755 | | | 1,284,765 | |
Less: current maturities of long-term debt | | (9,181) | | | (13,576) | |
Long-term debt | | $ | 1,333,574 | | | $ | 1,271,189 | |
10. Employee Benefit Plans
| | | | | Three Months Ended | | | Three Months Ended |
| | September 30 | | September 30 |
Defined Benefit Pension Plans Net Periodic Pension Cost (Benefit) | Defined Benefit Pension Plans Net Periodic Pension Cost (Benefit) | | U.S. Plans | | International Plans | Defined Benefit Pension Plans Net Periodic Pension Cost (Benefit) | | U.S. Plans | | International Plans |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Service costs | Service costs | | $ | 0 | | | $ | 10 | | | $ | 448 | | | $ | 344 | | Service costs | | $ | — | | | $ | — | | | $ | 489 | | | $ | 448 | |
Interest costs | Interest costs | | 1,845 | | | 2,637 | | | 4,474 | | | 5,168 | | Interest costs | | 1,203 | | | 1,845 | | | 3,184 | | | 4,474 | |
Expected return on plan assets | Expected return on plan assets | | (2,842) | | | (2,602) | | | (10,405) | | | (8,671) | | Expected return on plan assets | | (3,050) | | | (2,842) | | | (11,303) | | | (10,405) | |
Recognized prior service costs | Recognized prior service costs | | 0 | | | 0 | | | 113 | | | 61 | | Recognized prior service costs | | — | | | — | | | 125 | | | 113 | |
Recognized loss | Recognized loss | | 1,225 | | | 1,395 | | | 3,737 | | | 3,326 | | Recognized loss | | 1,384 | | | 1,225 | | | 4,538 | | | 3,737 | |
Settlement/curtailment losses | | 0 | | | 0 | | | 0 | | | 0 | | |
| Defined benefit pension plans net periodic pension cost (benefit) | Defined benefit pension plans net periodic pension cost (benefit) | | $ | 228 | | | $ | 1,440 | | | $ | (1,633) | | | $ | 228 | | Defined benefit pension plans net periodic pension cost (benefit) | | $ | (463) | | | $ | 228 | | | $ | (2,967) | | | $ | (1,633) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Nine Months Ended |
| | September 30 |
Defined Benefit Pension Plans Net Periodic Pension Cost (Benefit) | | U.S. Plans | | International Plans |
(In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Service costs | | $ | — | | | $ | — | | | $ | 1,482 | | | $ | 1,303 | |
Interest costs | | 3,609 | | | 5,535 | | | 9,619 | | | 13,104 | |
Expected return on plan assets | | (9,150) | | | (8,526) | | | (34,181) | | | (30,428) | |
Recognized prior service costs | | — | | | — | | | 381 | | | 326 | |
Recognized loss | | 4,154 | | | 3,875 | | | 13,723 | | | 10,924 | |
| | | | | | | | |
| | | | | | | | |
Defined benefit pension plans net periodic pension cost (benefit) | | $ | (1,387) | | | $ | 884 | | | $ | (8,976) | | | $ | (4,771) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Nine Months Ended |
| | September 30 |
Defined Benefit Pension Plans Net Periodic Pension Cost (Benefit) | | U.S. Plans | | International Plans |
(In thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Service costs | | $ | 0 | | | $ | 30 | | | $ | 1,303 | | | $ | 1,057 | |
Interest costs | | 5,535 | | | 7,939 | | | 13,104 | | | 16,380 | |
Expected return on plan assets | | (8,526) | | | (7,788) | | | (30,428) | | | (27,507) | |
Recognized prior service costs | | 0 | | | 0 | | | 326 | | | 192 | |
Recognized loss | | 3,875 | | | 4,205 | | | 10,924 | | | 10,556 | |
| | | | | | | | |
Settlement/curtailment losses | | 0 | | | 129 | | | 0 | | | 0 | |
Defined benefit pension plans net periodic pension cost (benefit) | | $ | 884 | | | $ | 4,515 | | | $ | (4,771) | | | $ | 678 | |
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
Company Contributions | Company Contributions | | September 30 | | September 30 | Company Contributions | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Defined benefit pension plans (U.S.) | Defined benefit pension plans (U.S.) | | $ | 453 | | | $ | 2,806 | | | $ | 2,940 | | | $ | 6,296 | | Defined benefit pension plans (U.S.) | | $ | 451 | | | $ | 453 | | | $ | 3,768 | | | $ | 2,940 | |
Defined benefit pension plans (International) | Defined benefit pension plans (International) | | 2,682 | | | 4,121 | | | 14,235 | | | 16,522 | | Defined benefit pension plans (International) | | 4,549 | | | 2,682 | | | 21,472 | | | 14,235 | |
Multiemployer pension plans | Multiemployer pension plans | | 390 | | | 527 | | | 1,178 | | | 1,531 | | Multiemployer pension plans | | 429 | | | 390 | | | 1,311 | | | 1,178 | |
Defined contribution pension plans | Defined contribution pension plans | | 2,870 | | | 2,358 | | | 7,936 | | | 8,717 | | Defined contribution pension plans | | 2,974 | | | 2,870 | | | 9,507 | | | 7,936 | |
The Company's estimate of expected contributions to be paid during the remainder of 20202021 for the U.S. and international defined benefit pension plans is $3.1$0.5 million and $6.1$3.3 million, respectively. The recently enacted CARES Act allows for the deferral, until 2021, of certain expected pension contributions in the U.S. The Company is currently evaluating this alternative.
11. Income Taxes
Income tax expense from continuing operations for the three and nine months ended September 30, 2021 was $7.0 million and $19.8 million, respectively. Income tax benefit related tofrom continuing operations for the three and nine months ended September 30, 2020 was $1.7 million and $4.6 million, respectively. IncomeThe change in the income tax expense related to continuing operations for the three and nine months ended September 30, 2019 was $12.6 million and $17.8 million, respectively. Income2021 compared with the income tax benefit for the three and nine months ended September 30, 2020 compared with income tax expense for the same periods in 2019 is the result of lower pretaxhigher pre-tax income, primarily resulting from decreased operating income due to impacts of COVID-19 and incrementalan improvement in operations, acquisition and integration costs in connection with the Company's acquisitions of approximately $8.1 million2020 not recurring in 2021, and $23.9 million for the three and nine months ended September 30, 2020, respectively, as well as a $2.8 million favorable income tax adjustment in connection with an increase in estimated usage of assumed net operating losses related to the Clean Earth acquisition and a $2.8 million valuation allowance adjustment against a deferred tax asset due to a lower projected income in a certain jurisdiction in 20192020 not recurring in 2020.2021.
An income tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, based on technical merits, including resolutions of any related appeals or litigation processes. The reserve for uncertain tax positions at September 30, 20202021 was $4.0$4.3 million, including interest and penalties. Within the next twelve months, it is reasonably possible that $0.3 million unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.
12. Commitments and Contingencies
Environmental
The Company is involved in a number of environmental remediation investigations and cleanups and, along with other companies, has been identified as a “potentially responsible party” for certain byproduct disposal sites. While each of these matters is subject to various uncertainties, it is probable that the Company will agree to make payments toward funding certain of these activities, and it is possible that some of these matters will be decided unfavorably to the Company. The Company has evaluated its potential liability and its financial exposure is dependent upon such factors as the continuing evolution of
environmental laws and regulatory requirements, the availability and application of technology, the allocation of cost among potentially responsible parties, the years of remedial activity required and the remediation methods selected.
The Company evaluates its liability for future environmental remediation costs on a quarterly basis. Although actual costs to be incurred at identified sites in future periods may vary from the estimates (given inherent uncertainties in evaluating environmental exposures), the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with environmental matters in excess of the amounts accrued would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The following table summarizes information related to the location and undiscounted amount of the Company's environmental liabilities:
| (In thousands) | (In thousands) | | September 30 2020 | | December 31 2019 | (In thousands) | | September 30 2021 | | December 31 2020 |
Current portion of environmental liabilities (a) | Current portion of environmental liabilities (a) | | $ | 6,031 | | | $ | 3,431 | | Current portion of environmental liabilities (a) | | $ | 7,005 | | | $ | 6,933 | |
Long-term environmental liabilities | Long-term environmental liabilities | | 29,747 | | | 5,600 | | Long-term environmental liabilities | | 28,589 | | | 29,424 | |
Total environmental liabilities | Total environmental liabilities | | $ | 35,778 | | | $ | 9,031 | | Total environmental liabilities | | $ | 35,594 | | | $ | 36,357 | |
(a) The current portion of environmental liabilities is included in the caption Other current liabilities on the Company's Condensed Consolidated Balance Sheets.
Environmental liabilities relate primarily to the ESOL business which was acquired on April 6, 2020. As part of the ESOL acquisition, the Company assumed control of certain closed sites that were being monitored as part of ongoing environmental remediation plans. See Note 3, Acquisitions and Dispositions, for additional details.
Legal Proceedings
In the ordinary course of business, the company is a defendant or party to various claims and lawsuits, including those discussed below.
On January 27, 2020, the U.S. EPA issued a Notice of Potential Liability to the Company, along with several other companies, concerning the Newtown Creek Superfund Site located in Kings and Queens Counties in New York. The Notice alleges certain facilities formerly owned or operated by subsidiaries of the Company may have resulted in the discharge of hazardous substances into Newtown Creek or its Dutch Kills tributary. The site has been subject to CERCLA response activities since approximately 2011. 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.
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 wasand 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 and are owned under a strategic venture for which its strategic venture partner owns a 35% minority interest.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. The Company currently expects thoseCommissioning of the facilities to commence operationswas completed during the fourththird quarter of 2020.2021 and the processing of the salt cakes has commenced. The Company has previously established a reserve of $7.0 million,
which represents the Company's best estimate of the ultimate costs to be incurred to resolve this matter. The Company continues to evaluate this reserve and any future change in estimated costs could be material to the Company’s results of operations in any one period.
On July 27, 2018 Brazil’s Federal and Rio de Janeiro State Public Prosecution Offices (MPF and MPE) filed a Civil Public Action against one of the Company's customers (CSN), the Company’s Brazilian subsidiary, the Municipality of Volta Redonda, Brazil, and the Instituto Estadual do Ambiente (local environmental protection agency) seeking the implementation of various measures to limit and reduce the accumulation of customer-owned slag at the site in Brazil. On August 6, 2018 the 3rd Federal Court in Volta Redonda granted the MPF and MPE an injunction against the same parties requiring, among other
things, CSN and the Company’s Brazilian subsidiary to limit the volume of slag sent to the site. Because the customer owns the site and the slag located on the site, the Company believes that complying with this injunction is the steel producer’s responsibility. On March 18, 2019 the Court issued an order fining the Company 5,000 Brazilian reais per day (or approximately $900$1 thousand per day) and CSN 20,000 Brazilian reais per day (or approximately $4,000$4 thousand per day) until the requirements of the injunction are met. On November 1, 2019 the Court issued an additional order increasing the fines assessed to the Company to 25,000 Brazilian reais per day (or approximately $4,000$5 thousand per day) and raising the fines assessed to CSN to
100,000 Brazilian reais per day (or approximately $18,000$18 thousand per day). The Court also assessed an additional fine of
10,000,000 Brazilian reais (or approximately $1,800,000)$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 alleges violations of the Company’s environmental permit at the site, which restricts the release of any visible dust emissions. The enforcement action ordered the Company to cease all violations of the permit by October 31, 2018. The authorities have issued 3 additional enforcement actions since that time and have asserted fines of approximately $0.7 million which the Company has recorded, with the possibility of additional fines for any future violations. 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 of Dutch environmental and criminal law in connection with dust releases and/or events alleged to have occurred in 2018 through May 2020 at the site. The indictments cite provisions which permit fines for the alleged infractions, although no specific fine is listed in the indictment. The Company is vigorously contesting the enforcement action and finescriminal charges and is also working with its customer to ensure the control of emissions. The Company has contractual indemnity rights from its customer shouldthat it be required to pay the assessed fines. believes will substantially cover any fines or penalties.
On June 13, 2019 the PA DEP indicated to the Company and a landowner who received processed slag from the Company that it plans to require action to bring the landowner’s site into compliance and toassess a civil penalty against the Company and the landowner. The Company is working with the landowner and PA DEP to determine the most effective way to address PA DEP’s concerns about the site and has established a $0.4 million reserve, which represents the Company’s best estimate of the costs to bring the landowner's site into compliance.
On March 24, 2017 the Allegheny County Health Department issued a notice of violation against the Company concerning the Company’s operations at a customer site in Natrona, Pennsylvania. On January 21, 2020 the Company paid $0.1 million to settle the civil penalties accrued up to that date. On May 4, 2020, the Company paid a $5 thousand penalty and on August 21, 2020, the Company paid a $6 thousand penalty, both for alleged additional events. The Company also received an additional assessment of $8 thousand on October 23, 2020. It is possible the Company could incur additional penalties for future violations. Pursuant to the settlement agreement, the Company and its customer have also agreed to construct and bring certain slag processing operations into a building. On October 29, 2020, one of the residents of Natrona filed a punitive class action lawsuit against the Company in the Court of Common Pleas of Allegheny County, Pennsylvania, seeking unspecified damages and injunctive relief due to alleged dust emissions at the site, which the Company believes is without merit.
DEA Investigation
Prior to the Company’s acquisition of ESOL, Stericycle, Inc notified the Company that the DEA had served an administrative subpoena on Stericycle, Inc. and executed a search warrant at a facility in Rancho Cordova, California and an administrative inspection warrant at a facility in Indianapolis, Indiana. The Company has determined that the DEA and the DTSC have launched investigations involving, at least in part, the ESOL business of collecting, transporting, and destroying controlled substances from retail customers that transferred from Stericycle, Inc. to the Company. In connection with these investigations, the DEA also executed a search warrant on an ESOL facility in Austin Texas on July 2, 2020. The Company is cooperating with these inquiries, which relate primarily to the period before the Company owned the ESOL business. Since the acquisition of the ESOL business, the Company has performed a vigorous review of ESOL’s compliance program related to controlled substances and has made material changes to the manner in which controlled substances are transported from retail customers to DEA-registered facilities for destruction. The Company has not accrued any amounts in respect of these investigations and cannot estimate the reasonably possible loss or the range of reasonably possible losses that it may incur, if any. Investigations of this type are, by their nature, uncertain and unpredictable. While it is the Company’s position that it has recourse for some or all liabilities, if any, that arise from these matters under the ESOL purchase agreement and representations and warranties insurance policies purchased by the Company, there can be no assurances that the Company’s position will ultimately prevail.
Brazilian Tax Disputes
The Company is involved in a number of tax disputes with federal, state and municipal tax authorities in Brazil. These disputes are at various stages of the legal process, including the administrative review phase and the collection action phase, and include assessments of fixed amounts of principal and penalties, plus interest charges that increase at statutorily determined amounts per month and are assessed on the aggregate amount of the principal and penalties. In addition, the losing party, at the collection action or court of appeals phase, could be subject to a charge to cover statutorily mandated legal fees, which are
generally calculated as a percentage of the total assessed amounts due, inclusive of penalty and interest. Many of the claims
relate to ICMS, services and social security tax disputes. The largest proportion of the assessed amounts relate to ICMS claims filed by the SPRA, encompassing the period from January 2002 to May 2005.
In October 2009, the Company received notification of the SPRA’s final administrative decision regarding the levying of ICMS in the State of São Paulo in relation to services provided to a customer in the State between January 2004 and May 2005. As of September 30, 20202021 the principal amount of the tax assessment from the SPRA with regard to this case is approximately $1.1 million, with penalty, interest and fees assessed to date increasing such amount by an additional $15.0$15.8 million. On June 4, 2018 the Appellate Court of the State of Sao Paulo ruled in favor of the SPRA but ruled that the assessed penalty should be reduced to approximately $1.1 million. After calculating the interest accrued on the penalty, the Company estimates that this ruling reduces the current overall potential liability for this case to approximately $6.4$6.7 million. All such amounts include the effect of foreign currency translation. The Company has appealed the ruling in favor of the SPRA to the Superior Court of Justice. Due to multiple court precedents in the Company’s favor, as well as the Company’s ability to appeal, the Company does not believe a loss is probable.
Another ICMS tax case involving the SPRA refers to the tax period from January 2002 to December 2003. In December 2018 the administrative tribunal hearing the case upheld the Company's liability. The Company has appealed to the judicial phase. The aggregate amount assessed by the tax authorities in August 2005 was $4.5$4.7 million (the amounts with regard to this claim are valued as of the date of the assessment since it has not yet reached the collection phase), composed of a principal amount of $1.1 million, with penalty and interest assessed through that date increasing such amount by an additional $3.4$3.6 million. On December 6, 2018 the administrative tribunal reduced the applicable penalties to $0.8 million. After calculating the interest accrued on the current penalty, the Company estimates that the current overall liability for this case to be approximately $9.0$5.2 million. All such amounts include the effect of foreign currency translation. Due to multiple court precedents in the Company's favor, the Company does not believe a loss is probable.
The Company continues to believe that sufficient coverage for these claims exists as a result of the indemnification obligations of the Company's customer and such customer’s pledge of assets in connection with the October 2009 notice, as required by Brazilian law.
On December 30, 2020, the Company received an assessment from the municipal authority in Ipatinga, Brazil alleging approximately $2.0 million in unpaid service taxes from the period 2015 to 2020. After calculating the interest and penalties accrued, the Company estimates that the current overall potential liability for this case to be approximately $3.3 million. On January 18, 2021, the Company filed a challenge to the assessment. Due to the multiple defenses that are available, the Company does not believe a loss is probable.
The Company intends to continue its practice of vigorously defending itself against these tax claims under various alternatives, including judicial appeal. The Company will continue to evaluate its potential liability with regard to these claims on a quarterly basis; however, it is not possible to predict the ultimate outcome of these tax-related disputes in Brazil. No loss provision has been recorded in the Company's condensed consolidated financial statements for the disputes described above because the loss contingency is not deemed probable, and the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with Brazilian tax disputes would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Brazilian Labor Disputes
The Company is subject to ongoing collective bargaining and individual labor claims in Brazil through the Harsco Environmental Segment which allege, among other things, the Company's failure to pay required amounts for overtime and vacation at certain sites. The Company is vigorously defending itself against these claims; however, litigation is inherently unpredictable, particularly in foreign jurisdictions. While the Company does not currently expect that the ultimate resolution of these claims will have a material adverse effect on the Company’s financial condition, results of operations or cash flows, it is not possible to predict the ultimate outcome of these labor-related disputes. As of September 30, 20202021 and December 31, 20192020 the Company has established reserves of $4.3$3.5 million and $6.5$4.3 million, respectively, on the Company's Condensed Consolidated Balance Sheets for amounts considered to be probable and estimable.
Customer Disputes
The Company may, in the normal course of business, become involved in commercial disputes with subcontractors or customers. Although results of operations and cash flows for a given period could be adversely affected by a negative outcome in these or other lawsuits, claims or proceedings, management believes that the ultimate outcome of any ongoing matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.
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 September 30, 20202021 there were approximately 17,16017,200 pending asbestos personal injury actions filed against the Company. Of those actions, approximately 16,59616,610 were filed in the New York Supreme Court (New York County), approximately 119120 were filed in other New York State Supreme Court Counties and approximately 445470 were filed in courts located in other states.
The complaints in most of those actions generally follow a form that contains a standard damages demand of $20 million or $25 million, regardless of the individual plaintiff’s alleged medical condition, and without identifying any specific Company product.
At September 30, 20202021 approximately 16,550 of the actions filed in New York Supreme Court (New York County) were on the Deferred/Inactive Docket created by the court in December 2002 for all pending and future asbestos actions filed by persons who cannot demonstrate that they have a malignant condition or discernible physical impairment. The remaining approximately 4660 cases in New York County are pending on the Active or In Extremis Docket created for plaintiffs who can demonstrate a malignant condition or physical impairment.
The Company has liability insurance coverage under various primary and excess policies that the Company believes will be available, if necessary, to substantially cover any liability that might ultimately be incurred in the asbestos actions referred to above. The costs and expenses of the asbestos actions are being paid by the Company's insurers.
In view of the persistence of asbestos litigation in the U.S., the Company expects to continue to receive additional claims in the future. The Company intends to continue its practice of vigorously defending these claims and cases. At September 30, 20202021 the Company has obtained dismissal in approximately 28,30028,350 cases by stipulation or summary judgment prior to trial.
It is not possible to predict the ultimate outcome of asbestos-related actions in the U.S. due to the unpredictable nature of this litigation, and no loss provision has been recorded in the Company's condensed consolidated financial statements because a loss contingency is not deemed probable or estimable. Despite this uncertainty, and although results of operations and cash flows for a given period could be adversely affected by asbestos-related actions, the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with asbestos litigation would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by established reserves, and, if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Insurance liabilities are recorded when it is probable that a liability has been incurred for a particular event and the amount of loss associated with the event can be reasonably estimated. Insurance reserves have been estimated based primarily upon actuarial calculations and reflect the undiscounted estimated liabilities for ultimate losses, including claims incurred but not reported. Inherent in these estimates are assumptions that are based on the Company's history of claims and losses, a detailed analysis of existing claims with respect to potential value, and current legal and legislative trends. If actual claims differ from those projected by management, changes (either increases or decreases) to insurance reserves may be required and would be recorded through income in the period the change was determined. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Insurance claim receivables are included in Other receivables on the Company's Condensed Consolidated Balance Sheets. See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 for additional information on Accrued insurance and loss reserves.
13. Reconciliation of Basic and Diluted Shares
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands, except per share amounts) | (In thousands, except per share amounts) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands, except per share amounts) | | 2021 | | 2020 | | 2021 | | 2020 |
Income (loss) from continuing operations attributable to Harsco Corporation common stockholders | Income (loss) from continuing operations attributable to Harsco Corporation common stockholders | | $ | (7,843) | | | $ | 17,831 | | | $ | (27,375) | | | $ | 25,453 | | Income (loss) from continuing operations attributable to Harsco Corporation common stockholders | | $ | 8,696 | | | $ | (7,843) | | | $ | 24,621 | | | $ | (27,375) | |
Weighted-average shares outstanding: | Weighted-average shares outstanding: | | | | | | | | | Weighted-average shares outstanding: | | | | | | | | |
Weighted-average shares outstanding - basic | Weighted-average shares outstanding - basic | | 79,000 | | | 79,666 | | | 78,916 | | | 79,966 | | Weighted-average shares outstanding - basic | | 79,287 | | | 79,000 | | | 79,214 | | | 78,916 | |
Dilutive effect of stock-based compensation | Dilutive effect of stock-based compensation | | 0 | | | 1,444 | | | 0 | | | 1,783 | | Dilutive effect of stock-based compensation | | 988 | | | — | | | 1,142 | | | — | |
Weighted-average shares outstanding - diluted | Weighted-average shares outstanding - diluted | | 79,000 | | | 81,110 | | | 78,916 | | | 81,749 | | Weighted-average shares outstanding - diluted | | 80,275 | | | 79,000 | | | 80,356 | | | 78,916 | |
| Earnings (loss) from continuing operations per common share, attributable to Harsco Corporation common stockholders: | Earnings (loss) from continuing operations per common share, attributable to Harsco Corporation common stockholders: | Earnings (loss) from continuing operations per common share, attributable to Harsco Corporation common stockholders: |
Basic | Basic | | $ | (0.10) | | | $ | 0.22 | | | $ | (0.35) | | | $ | 0.32 | | Basic | | $ | 0.11 | | | $ | (0.10) | | | $ | 0.31 | | | $ | (0.35) | |
| Diluted | Diluted | | $ | (0.10) | | | $ | 0.22 | | | $ | (0.35) | | | $ | 0.31 | | Diluted | | $ | 0.11 | | | $ | (0.10) | | | $ | 0.31 | | | $ | (0.35) | |
The following average outstanding stock-based compensation units were not included in the computation of diluted earnings per share because the effect was antidilutive:either antidilutive or the market conditions for the performance share units were not met:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Restricted stock units | Restricted stock units | | 691 | | | 0 | | | 723 | | | 0 | | Restricted stock units | | — | | | 691 | | | — | | | 723 | |
| Stock appreciation rights | Stock appreciation rights | | 2,383 | | | 599 | | | 2,499 | | | 460 | | Stock appreciation rights | | 842 | | | 2,383 | | | 719 | | | 2,499 | |
Performance share units | Performance share units | | 857 | | | 265 | | | 894 | | | 166 | | Performance share units | | 1,004 | | | 857 | | | 902 | | | 894 | |
|
14. Derivative Instruments, Hedging Activities and Fair Value
Derivative Instruments and Hedging Activities
The Company uses derivative instruments, including foreign currency exchange forward contracts, interest rate swaps and CCIRs, to manage certain foreign currency and interest rate exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for trading or speculative purposes. All derivative instruments are recorded on the Company's Condensed Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs, such as forward rates, interest rates, the Company’s credit risk and counterparties’ credit risks, and which minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the ability to observe those inputs. Foreign currency exchange forward contracts, interest rate swaps and CCIRs are based upon pricing models using market-based inputs (Level 2). Model inputs can be verified and valuation techniques do not involve significant management judgment.
The fair value of outstanding derivative contracts recorded as assets and liabilities on the Company's Condensed Consolidated Balance Sheets was as follows:
| (In thousands) | (In thousands) | | Balance Sheet Location | | Fair Value of Derivatives Designated as Hedging Instruments | | Fair Value of Derivatives Not Designated as Hedging Instruments | | Total Fair Value | (In thousands) | | Balance Sheet Location | | Fair Value of Derivatives Designated as Hedging Instruments | | Fair Value of Derivatives Not Designated as Hedging Instruments | | Total Fair Value |
September 30, 2020 | | | | | | | | | |
September 30, 2021 | | September 30, 2021 | | | | | | | | |
Asset derivatives (Level 2): | Asset derivatives (Level 2): | | Asset derivatives (Level 2): | |
Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | | Other current assets | | $ | 2,178 | | | $ | 509 | | | $ | 2,687 | | Foreign currency exchange forward contracts | | Other current assets | | $ | 930 | | | $ | 8,718 | | | $ | 9,648 | |
| Total | Total | | | | $ | 2,178 | | | $ | 509 | | | $ | 2,687 | | Total | | | | $ | 930 | | | $ | 8,718 | | | $ | 9,648 | |
|
| (In thousands) | (In thousands) | | Balance Sheet Location | | Fair Value of Derivatives Designated as Hedging Instruments | | Fair Value of Derivatives Not Designated as Hedging Instruments | | Total Fair Value | (In thousands) | | Balance Sheet Location | | Fair Value of Derivatives Designated as Hedging Instruments | | Fair Value of Derivatives Not Designated as Hedging Instruments | | Total Fair Value |
| Liability derivatives (Level 2): | Liability derivatives (Level 2): | Liability derivatives (Level 2): |
Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | | Other current liabilities | | $ | 287 | | | $ | 8,833 | | | $ | 9,120 | | Foreign currency exchange forward contracts | | Other current liabilities | | $ | 851 | | | $ | 866 | | | $ | 1,717 | |
Interest rate swaps | Interest rate swaps | | Other current liabilities | | 3,822 | | | 0 | | | 3,822 | | Interest rate swaps | | Other current liabilities | | 4,068 | | | — | | | 4,068 | |
Interest rate swaps | Interest rate swaps | | Other liabilities | | 4,542 | | | 0 | | | 4,542 | | Interest rate swaps | | Other liabilities | | 1,053 | | | — | | | 1,053 | |
Total | Total | | $ | 8,651 | | | $ | 8,833 | | | $ | 17,484 | | Total | | $ | 5,972 | | | $ | 866 | | | $ | 6,838 | |
December 31, 2019 | | | | | | | | | |
December 31, 2020 | | December 31, 2020 | | | | | | | | |
Asset derivatives (Level 2): | Asset derivatives (Level 2): | | Asset derivatives (Level 2): | |
Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | | Other current assets | | $ | 2,039 | | | $ | 946 | | | $ | 2,985 | | Foreign currency exchange forward contracts | | Other current assets | | $ | 900 | | | $ | 2,777 | | | $ | 3,677 | |
| Total | Total | | | | $ | 2,039 | | | $ | 946 | | | $ | 2,985 | | Total | | | | $ | 900 | | | $ | 2,777 | | | $ | 3,677 | |
Liability derivatives (Level 2): | Liability derivatives (Level 2): | Liability derivatives (Level 2): |
Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | | Other current liabilities | | $ | 140 | | | $ | 3,733 | | | $ | 3,873 | | Foreign currency exchange forward contracts | | Other current liabilities | | $ | 950 | | | $ | 4,098 | | | $ | 5,048 | |
Interest rate swaps | Interest rate swaps | | Other current liabilities | | 2,098 | | | 0 | | | 2,098 | | Interest rate swaps | | Other current liabilities | | 3,959 | | | — | | | 3,959 | |
Interest rate swaps | Interest rate swaps | | Other liabilities | | 4,281 | | | 0 | | | 4,281 | | Interest rate swaps | | Other liabilities | | 3,718 | | | — | | | 3,718 | |
Total | Total | | $ | 6,519 | | | $ | 3,733 | | | $ | 10,252 | | Total | | $ | 8,627 | | | $ | 4,098 | | | $ | 12,725 | |
All of the Company's derivatives are recorded on the Company's Condensed Consolidated Balance Sheets at gross amounts and not offset. All of the Company's interest rate swaps, CCIRs and certain foreign currency exchange forward contracts are transacted under ISDA documentation. Each ISDA master agreement permits the net settlement of amounts owed in the event of default. The Company's derivative assets and liabilities subject to enforceable master netting arrangements, if offset, would have resulted in a $1.3 million net liability at September 30, 2021 and at December 31, 2020 would not have resulted in a net asset or liability at September 30, 2020 or December 31, 2019.liability.
The effect of derivative instruments on the Company's Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income (Loss) was as follows:
Derivatives Designated as Hedging Instruments
| | | Amount Recognized in OCI on Derivatives | | Location of Amount Reclassified from AOCI into Income | | Amount Reclassified from AOCI into Income - Effective Portion or Equity | | Amount Recognized in OCI on Derivatives | | Location of Amount Reclassified from AOCI into Income | | Amount Reclassified from AOCI into Income - Effective Portion or Equity |
| | Three Months Ended | | Three Months Ended | | Three Months Ended | | Three Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | | $ | (1,244) | | | $ | 808 | | | Product revenues | | $ | 174 | | | $ | (512) | | Foreign currency exchange forward contracts | | $ | 611 | | | $ | (1,244) | | | Product revenues | | $ | (418) | | | $ | 174 | |
| Interest rate swaps | Interest rate swaps | | (95) | | | (930) | | | Interest expense | | 739 | | | (76) | | Interest rate swaps | | (27) | | | (95) | | | Interest expense | | 872 | | | 739 | |
CCIRs (a) | CCIRs (a) | | (24) | | | 51 | | | Interest expense | | 312 | | | 291 | | CCIRs (a) | | — | | | (24) | | | Interest expense | | — | | | 312 | |
| | | $ | (1,363) | | | $ | (71) | | | | | $ | 1,225 | | | $ | (297) | | | | $ | 584 | | | $ | (1,363) | | | | | $ | 454 | | | $ | 1,225 | |
| | | | Amount Recognized in OCI on Derivatives | | Location of Amount Reclassified from AOCI into Income | | Amount Reclassified from Accumulated OCI into Income - Effective Portion or Equity | | Amount Recognized in OCI on Derivatives | | Location of Amount Reclassified from AOCI into Income | | Amount Reclassified from AOCI into Income - Effective Portion or Equity |
| | Nine Months Ended | | Nine Months Ended | | Nine Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | | $ | 834 | | | $ | 765 | | | Product revenues/Cost of services sold | | $ | (1,562) | | | $ | (933) | | Foreign currency exchange forward contracts | | $ | 170 | | | $ | 834 | | | Product revenues | | $ | (465) | | | $ | (1,562) | |
Interest rate swaps | | — | | | — | | | Income from discontinued businesses | | 0 | | | 2,741 | | |
| Interest rate swaps | Interest rate swaps | | (3,835) | | | (8,566) | | | Interest expense | | 1,849 | | | (648) | | Interest rate swaps | | (41) | | | (3,835) | | | Interest expense | | 2,599 | | | 1,849 | |
CCIRs (a) | CCIRs (a) | | 39 | | | 53 | | | Interest expense | | 912 | | | 908 | | CCIRs (a) | | — | | | 39 | | | Interest expense | | — | | | 912 | |
| | | $ | (2,962) | | | $ | (7,748) | | | | | $ | 1,199 | | | $ | 2,068 | | | | $ | 129 | | | $ | (2,962) | | | | | $ | 2,134 | | | $ | 1,199 | |
(a) Amounts represent changes in foreign currency translation related to balances in AOCI.
The location and amount of gain (loss) recognized on the Company's Condensed Consolidated Statements of Operations was as follows:
| | | Three Months Ended | | Three Months Ended |
| | September 30 | | September 30 |
| | 2020 | | | 2019 | | 2021 | | | 2020 |
(in thousands) | (in thousands) | | Product Revenues | | | Interest Expense | | | Product Revenues | | Cost of Services Sold | | Interest Expense | | (in thousands) | | Product Revenues | | | Interest Expense | | | Product Revenues | | | Interest Expense | |
Total amounts of line items presented in the Condensed Consolidated Statement of Operations in which the effects of cash flow hedges are recorded | Total amounts of line items presented in the Condensed Consolidated Statement of Operations in which the effects of cash flow hedges are recorded | | $ | 125,119 | | | | $ | (15,794) | | | | $ | 106,488 | | | $ | 239,519 | | | $ | (12,819) | | | Total amounts of line items presented in the Condensed Consolidated Statement of Operations in which the effects of cash flow hedges are recorded | | $ | 105,677 | | | | $ | (16,004) | | | | $ | 124,892 | | | | $ | (15,794) | | |
Interest rate swaps: | Interest rate swaps: | | | | | | | | | | | | | | Interest rate swaps: | | | | | | | | | | | | |
Gain or (loss) reclassified from AOCI into income | Gain or (loss) reclassified from AOCI into income | | 0 | | | | (739) | | | | 0 | | | — | | | 76 | | | Gain or (loss) reclassified from AOCI into income | | — | | | | (872) | | | | — | | | | (739) | | |
| Foreign exchange contracts: | Foreign exchange contracts: | | | | | | | Foreign exchange contracts: | | | | | | | | |
Gain or (loss) reclassified from AOCI into income | Gain or (loss) reclassified from AOCI into income | | (174) | | | | 0 | | | | 512 | | | 0 | | | 0 | | | Gain or (loss) reclassified from AOCI into income | | 418 | | | | — | | | | (174) | | | | — | | |
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value | Amount excluded from effectiveness testing recognized in earnings based on changes in fair value | | 12 | | | | 0 | | | | 86 | | | — | | | 0 | | | Amount excluded from effectiveness testing recognized in earnings based on changes in fair value | | 24 | | | | — | | | | 12 | | | | — | | |
Amount excluded from the effectiveness testing recognized in earnings based on an amortization approach | Amount excluded from the effectiveness testing recognized in earnings based on an amortization approach | | 3 | | | | — | | | | — | | | — | | | — | | | Amount excluded from the effectiveness testing recognized in earnings based on an amortization approach | | (1) | | | | — | | | | 3 | | | | — | | |
CCIRs: | CCIRs: | | | | | | | CCIRs: | | | | | | | | |
Loss reclassified from AOCI into income | Loss reclassified from AOCI into income | | 0 | | | | (312) | | | | 0 | | | — | | | (291) | | | Loss reclassified from AOCI into income | | — | | | | — | | | | — | | | | (312) | | |
| | | | Nine Months Ended | | Nine Months Ended |
| | September 30 | | September 30 |
| | 2020 | | 2019 | | 2021 | | 2020 |
(in thousands) | (in thousands) | | Product Revenues | | | Interest Expense | | Product Revenues | | Cost of Services Sold | | Interest Expense | | Income From Discontinued Operations | (in thousands) | | Product Revenues | | | Interest Expense | | Product Revenues | | | Interest Expense | |
Total amounts of line items presented in the Condensed Consolidated Statement of Operations in which the effects of cash flow hedges are recorded | Total amounts of line items presented in the Condensed Consolidated Statement of Operations in which the effects of cash flow hedges are recorded | | $ | 334,324 | | | | $ | (43,396) | | | $ | 319,765 | | | $ | 608,230 | | | $ | (24,429) | | | $ | 23,958 | | Total amounts of line items presented in the Condensed Consolidated Statement of Operations in which the effects of cash flow hedges are recorded | | $ | 343,171 | | | | $ | (48,854) | | | $ | 333,782 | | | | $ | (43,396) | | |
Interest rate swaps: | Interest rate swaps: | | | | | | | | | | | | | | Interest rate swaps: | | | | | | | | | | | |
Gain or (loss) reclassified from AOCI into income | Gain or (loss) reclassified from AOCI into income | | — | | | | (1,849) | | | — | | | — | | | 648 | | | — | | Gain or (loss) reclassified from AOCI into income | | — | | | | (2,599) | | | — | | | | (1,849) | | |
Loss reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring | | — | | | | — | | | — | | | — | | | — | | | (2,741) | | |
| Foreign exchange contracts: | Foreign exchange contracts: | | | | Foreign exchange contracts: | | | | | | |
Gain or (loss) reclassified from AOCI into income | Gain or (loss) reclassified from AOCI into income | | 1,562 | | | | — | | | 977 | | | (44) | | | — | | | — | | Gain or (loss) reclassified from AOCI into income | | 465 | | | | — | | | 1,562 | | | | — | | |
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value | Amount excluded from effectiveness testing recognized in earnings based on changes in fair value | | 208 | | | | — | | | 403 | | | — | | | — | | | — | | Amount excluded from effectiveness testing recognized in earnings based on changes in fair value | | 62 | | | | — | | | 208 | | | | — | | |
Amount excluded from the effectiveness testing recognized in earnings based on an amortization approach | Amount excluded from the effectiveness testing recognized in earnings based on an amortization approach | | 24 | | | | — | | | — | | | — | | | — | | | — | | Amount excluded from the effectiveness testing recognized in earnings based on an amortization approach | | (1) | | | | — | | | 24 | | | | — | | |
CCIRs: | CCIRs: | | | | CCIRs: | | | | | | |
Loss reclassified from AOCI into income | Loss reclassified from AOCI into income | | — | | | | (912) | | | — | | | — | | | (908) | | | — | | Loss reclassified from AOCI into income | | — | | | | — | | | — | | | | (912) | | |
Derivatives Not Designated as Hedging Instruments
| | | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income on Derivatives (b) | | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income on Derivatives (b) |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
| Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | | Cost of services and products sold | | $ | (12,279) | | | $ | 10,642 | | | $ | (5,001) | | | $ | 15,735 | | Foreign currency exchange forward contracts | | Cost of services and products sold | | $ | 4,105 | | | $ | (12,279) | | | $ | 8,109 | | | $ | (5,001) | |
|
(b) These gains (losses) offset amounts recognized in cost of services and products sold principally as a result of intercompany or third party foreign currency
exposures.
Foreign Currency Exchange Forward Contracts
The Company conducts business in multiple currencies and, accordingly, is subject to the inherent risks associated with foreign exchange rate movements. Foreign currency-denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the respective consolidated balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods.
The Company uses derivative instruments to hedge cash flows related to foreign currency fluctuations. Foreign currency exchange forward contracts outstanding are part of a worldwide program to minimize foreign currency exchange operating income and balance sheet exposure by offsetting foreign currency exposures of certain future payments between the Company and various subsidiaries, suppliers or customers. The unsecured contracts are with major financial institutions. The Company may be exposed to credit loss in the event of non-performance by the contract counterparties. The Company evaluates the creditworthiness of the counterparties and does not expect default by them. Foreign currency exchange forward contracts are used to hedge commitments, such as foreign currency debt, firm purchase commitments and foreign currency cash flows for certain export sales transactions.
Changes in the fair value of derivatives used to hedge foreign currency denominated balance sheet items are reported directly in earnings, along with offsetting transaction gains and losses on the items being hedged. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments may be accounted for as cash flow hedges, as deemed appropriate, if the criteria for hedge accounting are met. Gains and losses on derivatives designated as cash flow hedges are deferred in AOCI, a separate component of equity, and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized currently in earnings.
The recognized gains and losses offset amounts recognized in cost of services and products sold principally as a result of intercompany or third-party foreign currency exposures. At September 30, 20202021 and December 31, 20192020 the notional amounts of foreign currency exchange forward contracts were $431.6$363.2 million and $496.3$460.5 million, respectively. These contracts are primarily denominated in British Pound Sterling and Euros and mature through October 2021.March 2023.
In addition to foreign currency exchange forward contracts, the Company designates certain loans as hedges of net investments in international subsidiaries. The Company recorded pre-tax net gains of $4.6 million for the three months ended September 30, 2020 and pre-tax net losses of $7.4 million for the nine months ended September 30, 2020 and pre-tax net losses of $3.0$3.7 million and $3.7$0.1 million for the three and nine months ended September 30, 2019,2021, respectively and pre-tax net gains of $4.6 million and pre-tax net losses of $7.4 million for the three and nine months ended September 30, 2020, respectively, in AOCI.
Interest Rate Swaps
The Company uses interest rate swaps in conjunction with certain variable rate debt issuances in order to secure a fixed interest rate. Changes in the fair value attributed to the effect of the swaps’ interest spread and changes in the credit worthiness of the counter-parties are recorded in AOCI.
In January 2017 and February 2018At September 30, 2021, the Company has entered into a series of interest rate swaps that cover the period from 2018are in effect through 2022 and hadhave the effect of converting $300.0$200.0 million of the Original Term Loan Facility from floating-rate to fixed-rate. The fixed rates provided by the swaps replace the adjusted LIBOR rate in the interest calculation, ranging from 2.45%2.71% for 20202021 to 3.12% for 2022.
During June 2019 the Company effected the early termination of interest rate swaps that covered the period from 2019 through 2022 and had the effect of converting $100.0 million of the Original Term Loan from floating-rate to fixed-rate. This termination was conducted as a result of the Company's new Notes offering and required repayment of a portion of the Original Term Loan with proceeds from the AXC disposal. The total notional amount of the Company's interest rate swaps is $200.0 million as of September 30, 2020.
Cross-Currency Interest Rate Swaps
The Company may use CCIRs in conjunction with certain debt issuances in order to secure a fixed local currency interest rate. Under these CCIRs, the Company receives interest based on a fixed or floating U.S. dollar rate and pays interest on a fixed local currency rate based on the contractual amounts in dollars and the local currency, respectively. At maturity, there is also the payment of principal amounts between currencies. Changes in the fair value attributed to the effect of the swaps' interest spread and changes in the credit worthiness of the counter-parties are recorded in AOCI. Changes in value attributed to the effect of foreign currency fluctuations are recorded on the Company's Condensed Consolidated Statements of Operations and offset currency fluctuation effects on the debt principal. The Company had no outstanding CCIRs at September 30, 2020.2021.
Fair Value of Other Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term borrowings approximate fair value due to the short-term maturities of these assets and liabilities. At September 30, 20202021 and
December 31, 20192020 the total fair value of long-term debt (excluding deferred financing costs), including current maturities, was $1,264.6$1,378.5 million and $827.2$1,324.9 million, respectively, compared with a carrying value of $1,265.7$1,361.6 million and $795.0$1,300.5 million, respectively. The increase in both the fair value and carrying value of long-term debt is related to borrowings under the New Term Loan and the Revolving Credit Facility to fund the acquisition of ESOL. See Note 3, Acquisitions and Dispositions for additional details. Fair values for debt are based on pricing models using market-based inputs (Level 2) for similar issues or on the current rates offered to the Company for debt of the same remaining maturities. See Note 4, Accounts Receivable and Note Receivable, for fair value information related to the Company's Note Receivable obtained as part of the sale of the IKG business.
15. Review of Operations by Segment
| | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Revenues From Continuing Operations (a) | Revenues From Continuing Operations (a) | | | | | | | | | Revenues From Continuing Operations (a) | | | | | | | | |
Harsco Environmental | Harsco Environmental | | $ | 222,507 | | | $ | 260,883 | | | $ | 668,057 | | | $ | 791,533 | | Harsco Environmental | | $ | 269,901 | | | $ | 222,507 | | | $ | 800,433 | | | $ | 668,057 | |
Harsco Clean Earth | Harsco Clean Earth | | 194,098 | | | 87,639 | | | 434,489 | | | 87,639 | | Harsco Clean Earth | | 200,484 | | | 194,098 | | | 585,891 | | | 434,489 | |
| Harsco Rail | Harsco Rail | | 92,793 | | | 74,633 | | | 252,974 | | | 224,783 | | Harsco Rail | | 73,916 | | | 92,793 | | | 256,652 | | | 252,974 | |
| Total Revenues From Continuing Operations | Total Revenues From Continuing Operations | | $ | 509,398 | | | $ | 423,155 | | | $ | 1,355,520 | | | $ | 1,103,955 | | Total Revenues From Continuing Operations | | $ | 544,301 | | | $ | 509,398 | | | $ | 1,642,976 | | | $ | 1,355,520 | |
| Operating Income (Loss) From Continuing Operations (a) | Operating Income (Loss) From Continuing Operations (a) | Operating Income (Loss) From Continuing Operations (a) |
Harsco Environmental | Harsco Environmental | | $ | 12,317 | | | $ | 32,794 | | | $ | 36,400 | | | $ | 84,868 | | Harsco Environmental | | $ | 27,630 | | | $ | 12,317 | | | $ | 83,788 | | | $ | 36,400 | |
Harsco Clean Earth | Harsco Clean Earth | | 8,902 | | | 11,308 | | | 12,945 | | | 11,308 | | Harsco Clean Earth | | 9,893 | | | 8,902 | | | 20,457 | | | 12,945 | |
| Harsco Rail | Harsco Rail | | 4,059 | | | 12,115 | | | 19,162 | | | 26,947 | | Harsco Rail | | 1,957 | | | 4,059 | | | 15,533 | | | 19,162 | |
Corporate | Corporate | | (20,214) | | | (9,472) | | | (58,694) | | | (38,755) | | Corporate | | (9,560) | | | (20,214) | | | (28,815) | | | (58,694) | |
Total Operating Income From Continuing Operations | Total Operating Income From Continuing Operations | | $ | 5,064 | | | $ | 46,745 | | | $ | 9,813 | | | $ | 84,368 | | Total Operating Income From Continuing Operations | | $ | 29,920 | | | $ | 5,064 | | | $ | 90,963 | | | $ | 9,813 | |
| Depreciation (a) | Depreciation (a) | | | | | | | | | Depreciation (a) | | | | | | | | |
Harsco Environmental | Harsco Environmental | | $ | 25,588 | | | $ | 25,557 | | | $ | 75,626 | | | $ | 79,074 | | Harsco Environmental | | $ | 27,179 | | | $ | 25,588 | | | $ | 78,446 | | | $ | 75,626 | |
Harsco Clean Earth | Harsco Clean Earth | | 5,010 | | | 2,359 | | | 12,769 | | | 2,359 | | Harsco Clean Earth | | 4,576 | | | 5,010 | | | 14,818 | | | 12,769 | |
| Harsco Rail | Harsco Rail | | 1,258 | | | 1,192 | | | 3,730 | | | 3,414 | | Harsco Rail | | 1,233 | | | 1,258 | | | 3,651 | | | 3,730 | |
Corporate | Corporate | | 497 | | | 716 | | | 1,531 | | | 2,094 | | Corporate | | 491 | | | 497 | | | 1,468 | | | 1,531 | |
Total Depreciation | Total Depreciation | | $ | 32,353 | | | $ | 29,824 | | | $ | 93,656 | | | $ | 86,941 | | Total Depreciation | | $ | 33,479 | | | $ | 32,353 | | | $ | 98,383 | | | $ | 93,656 | |
| Amortization (a) | Amortization (a) | | | | | | | | | Amortization (a) | | | | | | | | |
Harsco Environmental | Harsco Environmental | | $ | 1,970 | | | $ | 1,751 | | | $ | 5,827 | | | $ | 5,436 | | Harsco Environmental | | $ | 1,997 | | | $ | 1,970 | | | $ | 6,080 | | | $ | 5,827 | |
Harsco Clean Earth | Harsco Clean Earth | | 6,218 | | | 3,834 | | | 16,463 | | | 3,834 | | Harsco Clean Earth | | 6,033 | | | 6,218 | | | 18,179 | | | 16,463 | |
Harsco Rail | Harsco Rail | | 85 | | | 84 | | | 252 | | | 238 | | Harsco Rail | | 84 | | | 85 | | | 254 | | | 252 | |
Corporate (b) | Corporate (b) | | 776 | | | 481 | | | 2,179 | | | 1,872 | | Corporate (b) | | 657 | | | 776 | | | 2,041 | | | 2,179 | |
Total Amortization | Total Amortization | | $ | 9,049 | | | $ | 6,150 | | | $ | 24,721 | | | $ | 11,380 | | Total Amortization | | $ | 8,771 | | | $ | 9,049 | | | $ | 26,554 | | | $ | 24,721 | |
Capital Expenditures (a) | Capital Expenditures (a) | | | | | | | | | Capital Expenditures (a) | | | | | | | | |
Harsco Environmental | Harsco Environmental | | $ | 21,700 | | | $ | 48,348 | | | $ | 65,102 | | | $ | 122,606 | | Harsco Environmental | | $ | 34,218 | | | $ | 21,700 | | | $ | 94,630 | | | $ | 65,102 | |
Harsco Clean Earth | Harsco Clean Earth | | 2,647 | | | 3,204 | | | 7,134 | | | 3,204 | | Harsco Clean Earth | | 5,707 | | | 2,647 | | | 12,962 | | | 7,134 | |
| Harsco Rail | Harsco Rail | | 3,474 | | | 3,280 | | | 6,310 | | | 13,561 | | Harsco Rail | | 529 | | | 3,474 | | | 1,329 | | | 6,310 | |
Corporate | Corporate | | 62 | | | 109 | | | 444 | | | 1,549 | | Corporate | | 407 | | | 62 | | | 586 | | | 444 | |
Total Capital Expenditures | Total Capital Expenditures | | $ | 27,883 | | | $ | 54,941 | | | $ | 78,990 | | | $ | 140,920 | | Total Capital Expenditures | | $ | 40,861 | | | $ | 27,883 | | | $ | 109,507 | | | $ | 78,990 | |
(a) The Company's acquisition of ESOL closed on April 6, 2020 and the Company's acquisition of Clean Earth closed on June 28, 2019. The operating results of the former Harsco Industrial Segment have been reflected as discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented.2020. See Note 3, Acquisitions and Dispositions, for additional details.
(b) Amortization expense on Corporate relates to the amortization of deferred financing costs.
Reconciliation of Segment Operating Income to Income (Loss) From Continuing Operations Before Income Taxes and Equity Income
| | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Segment operating income | Segment operating income | | $ | 25,278 | | | $ | 56,217 | | | $ | 68,507 | | | $ | 123,123 | | Segment operating income | | $ | 39,480 | | | $ | 25,278 | | | $ | 119,778 | | | $ | 68,507 | |
General Corporate expense | General Corporate expense | | (20,214) | | | (9,472) | | | (58,694) | | | (38,755) | | General Corporate expense | | (9,560) | | | (20,214) | | | (28,815) | | | (58,694) | |
Operating income from continuing operations | Operating income from continuing operations | | 5,064 | | | 46,745 | | | 9,813 | | | 84,368 | | Operating income from continuing operations | | 29,920 | | | 5,064 | | | 90,963 | | | 9,813 | |
Interest income | Interest income | | 604 | | | 445 | | | 1,613 | | | 1,569 | | Interest income | | 618 | | | 604 | | | 1,841 | | | 1,613 | |
Interest expense | Interest expense | | (15,794) | | | (12,819) | | | (43,396) | | | (24,429) | | Interest expense | | (16,004) | | | (15,794) | | | (48,854) | | | (43,396) | |
Unused debt commitment and amendment fees | | 0 | | | (158) | | | (1,920) | | | (7,593) | | |
Unused debt commitment fees, amendment fees and loss on extinguishment of debt | | Unused debt commitment fees, amendment fees and loss on extinguishment of debt | | (198) | | | — | | | (5,506) | | | (1,920) | |
| Defined benefit pension income (expense) | | 1,859 | | | (1,356) | | | 5,171 | | | (4,166) | | |
Defined benefit pension income | | Defined benefit pension income | | 3,906 | | | 1,859 | | | 11,833 | | | 5,171 | |
Income (loss) from continuing operations before income taxes and equity income | Income (loss) from continuing operations before income taxes and equity income | | $ | (8,267) | | | $ | 32,857 | | | $ | (28,719) | | | $ | 49,749 | | Income (loss) from continuing operations before income taxes and equity income | | $ | 18,242 | | | $ | (8,267) | | | $ | 50,277 | | | $ | (28,719) | |
16. Revenue Recognition
The Company recognizes revenues to depict the transfer of promised services and products to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services or products. Service revenues include the Harsco Clean Earth Segment and the service components of the Harsco Environmental and Harsco Rail Segments. Product revenues include portions of the Harsco Environmental and Harsco Rail Segments.
A summary of the Company's revenues by primary geographical markets as well as by key product and service groups is as follows:
| | | Three Months Ended | | Three Months Ended |
| | September 30, 2020 | | September 30, 2021 |
(In thousands) | (In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | Harsco Rail Segment | | | Consolidated Totals | (In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | Harsco Rail Segment | | | Consolidated Totals |
Primary Geographical Markets (a) (b): | Primary Geographical Markets (a) (b): | | | | | | | | | | Primary Geographical Markets (a) (b): | | | | | | | | | |
North America | North America | | $ | 58,973 | | | $ | 194,098 | | | $ | 62,805 | | | | $ | 315,876 | | North America | | $ | 71,479 | | | $ | 200,484 | | | $ | 48,553 | | | | $ | 320,516 | |
Western Europe | Western Europe | | 92,506 | | | 0 | | | 21,416 | | | | 113,922 | | Western Europe | | 106,859 | | | — | | | 16,915 | | | | 123,774 | |
Latin America (c) | Latin America (c) | | 29,085 | | | 0 | | | 412 | | | | 29,497 | | Latin America (c) | | 35,072 | | | — | | | 693 | | | | 35,765 | |
Asia-Pacific | Asia-Pacific | | 22,079 | | | 0 | | | 8,160 | | | | 30,239 | | Asia-Pacific | | 30,228 | | | — | | | 7,755 | | | | 37,983 | |
Middle East and Africa | Middle East and Africa | | 15,558 | | | 0 | | | 0 | | | | 15,558 | | Middle East and Africa | | 20,804 | | | — | | | — | | | | 20,804 | |
Eastern Europe | Eastern Europe | | 4,306 | | | 0 | | | 0 | | | | 4,306 | | Eastern Europe | | 5,459 | | | — | | | — | | | | 5,459 | |
Total Revenues | Total Revenues | | $ | 222,507 | | | $ | 194,098 | | | $ | 92,793 | | | | $ | 509,398 | | Total Revenues | | $ | 269,901 | | | $ | 200,484 | | | $ | 73,916 | | | | $ | 544,301 | |
Key Product and Service Groups (a): | Key Product and Service Groups (a): | | | | | | | | | | Key Product and Service Groups (a): | | | | | | | | | |
Environmental services related to resource recovery for metals manufacturing and related logistical services | Environmental services related to resource recovery for metals manufacturing and related logistical services | | $ | 181,640 | | | $ | 0 | | | $ | 0 | | | | $ | 181,640 | | Environmental services related to resource recovery for metals manufacturing and related logistical services | | $ | 230,340 | | | $ | — | | | $ | — | | | | $ | 230,340 | |
Applied products | Applied products | | 38,166 | | | 0 | | | 0 | | | | 38,166 | | Applied products | | 36,091 | | | — | | | — | | | | 36,091 | |
Environmental systems for aluminum dross and scrap processing | Environmental systems for aluminum dross and scrap processing | | 2,701 | | | 0 | | | 0 | | | | 2,701 | | Environmental systems for aluminum dross and scrap processing | | 3,470 | | | — | | | — | | | | 3,470 | |
Railway track maintenance equipment | Railway track maintenance equipment | | 0 | | | 0 | | | 55,493 | | | | 55,493 | | Railway track maintenance equipment | | — | | | — | | | 33,553 | | | | 33,553 | |
After market parts and services; safety and diagnostic technology | After market parts and services; safety and diagnostic technology | | 0 | | | 0 | | | 29,100 | | | | 29,100 | | After market parts and services; safety and diagnostic technology | | — | | | — | | | 33,030 | | | | 33,030 | |
Railway contracting services | Railway contracting services | | 0 | | | 0 | | | 8,200 | | | | 8,200 | | Railway contracting services | | — | | | — | | | 7,333 | | | | 7,333 | |
Waste processing, recycling, reuse and transportation solutions | Waste processing, recycling, reuse and transportation solutions | | 0 | | | 194,098 | | | 0 | | | | 194,098 | | Waste processing, recycling, reuse and transportation solutions | | — | | | 200,484 | | | — | | | | 200,484 | |
| Total Revenues | Total Revenues | | $ | 222,507 | | | $ | 194,098 | | | $ | 92,793 | | | | $ | 509,398 | | Total Revenues | | $ | 269,901 | | | $ | 200,484 | | | $ | 73,916 | | | | $ | 544,301 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2020 |
(In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | Harsco Rail Segment | | | | Consolidated Totals |
Primary Geographical Markets (a) (b): | | | | | | | | | | |
North America | | $ | 58,973 | | | $ | 194,098 | | | $ | 62,805 | | | | | $ | 315,876 | |
Western Europe | | 92,506 | | | — | | | 21,416 | | | | | 113,922 | |
Latin America (c) | | 29,085 | | | — | | | 412 | | | | | 29,497 | |
Asia-Pacific | | 22,079 | | | — | | | 8,160 | | | | | 30,239 | |
Middle East and Africa | | 15,558 | | | — | | | — | | | | | 15,558 | |
Eastern Europe | | 4,306 | | | — | | | — | | | | | 4,306 | |
Total Revenues | | $ | 222,507 | | | $ | 194,098 | | | $ | 92,793 | | | | | $ | 509,398 | |
| | | | | | | | | | |
| | | | | | | | | | |
Key Product and Service Groups (a): | | | | | | | | | | |
Environmental services related to resource recovery for metals manufacturing and related logistical services | | $ | 181,867 | | | $ | — | | | $ | — | | | | | $ | 181,867 | |
Applied products | | 38,166 | | | — | | | — | | | | | 38,166 | |
Environmental systems for aluminum dross and scrap processing | | 2,474 | | | — | | | — | | | | | 2,474 | |
Railway track maintenance equipment | | — | | | — | | | 55,493 | | | | | 55,493 | |
After market parts and services; safety and diagnostic technology | | — | | | — | | | 29,100 | | | | | 29,100 | |
Railway contracting services | | — | | | — | | | 8,200 | | | | | 8,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2019 |
(In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | Harsco Rail Segment | | | | Consolidated Totals |
Primary Geographical Markets (a) (b): | | | | | | | | | | |
North America | | $ | 78,076 | | | $ | 87,639 | | | $ | 56,923 | | | | | $ | 222,638 | |
Western Europe | | 93,426 | | | 0 | | | 10,409 | | | | | 103,835 | |
Latin America (c) | | 35,127 | | | 0 | | | 551 | | | | | 35,678 | |
Asia-Pacific | | 34,529 | | | 0 | | | 6,750 | | | | | 41,279 | |
Middle East and Africa | | 15,302 | | | 0 | | | 0 | | | | | 15,302 | |
Eastern Europe | | 4,423 | | | 0 | | | 0 | | | | | 4,423 | |
Total Revenues | | $ | 260,883 | | | $ | 87,639 | | | $ | 74,633 | | | | | $ | 423,155 | |
| | | | | | | | | | |
| | | | | | | | | | |
Key Product and Service Groups (a): | | | | | | | | | | |
Environmental services related to resource recovery for metals manufacturing and related logistical services | | $ | 218,788 | | | $ | 0 | | | $ | 0 | | | | | $ | 218,788 | |
Applied products | | 34,890 | | | 0 | | | 0 | | | | | 34,890 | |
Environmental systems for aluminum dross and scrap processing | | 7,205 | | | 0 | | | 0 | | | | | 7,205 | |
Railway track maintenance equipment | | 0 | | | 0 | | | 30,233 | | | | | 30,233 | |
After market parts and services; safety and diagnostic technology | | 0 | | | 0 | | | 37,100 | | | | | 37,100 | |
Railway contracting services | | 0 | | | 0 | | | 7,300 | | | | | 7,300 | |
Waste processing, recycling, reuse and transportation solutions | | 0 | | | 87,639 | | | 0 | | | | | 87,639 | |
| | | | | | | | | | |
Total Revenues | | $ | 260,883 | | | $ | 87,639 | | | $ | 74,633 | | | | | $ | 423,155 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2020 |
(In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | Harsco Rail Segment | | | | Consolidated Totals |
Waste processing, recycling, reuse and transportation solutions | | — | | | 194,098 | | | — | | | | | 194,098 | |
| | | | | | | | | | |
Total Revenues | | $ | 222,507 | | | $ | 194,098 | | | $ | 92,793 | | | | | $ | 509,398 | |
| | | | Nine Months Ended | | Nine Months Ended |
| | | September 30, 2020 | | | September 30, 2021 |
(In thousands) | (In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | | Harsco Rail Segment | | | Consolidated Totals | (In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | | Harsco Rail Segment | | | Consolidated Totals |
Primary Geographical Markets (a) (b): | Primary Geographical Markets (a) (b): | | | | | | | | | | | Primary Geographical Markets (a) (b): | | | | | | | | | | |
North America | North America | | $ | 186,210 | | | $ | 434,489 | | | | $ | 173,039 | | | | $ | 793,738 | | North America | | $ | 208,395 | | | $ | 585,891 | | | | $ | 185,812 | | | | $ | 980,098 | |
Western Europe | Western Europe | | 271,795 | | | 0 | | | | 56,435 | | | | 328,230 | | Western Europe | | 336,011 | | | — | | | | 47,220 | | | | 383,231 | |
Latin America (c) | Latin America (c) | | 87,453 | | | 0 | | | | 1,592 | | | | 89,045 | | Latin America (c) | | 99,524 | | | — | | | | 1,821 | | | | 101,345 | |
Asia-Pacific | Asia-Pacific | | 63,969 | | | 0 | | | | 21,908 | | | | 85,877 | | Asia-Pacific | | 80,520 | | | — | | | | 21,799 | | | | 102,319 | |
Middle East and Africa | Middle East and Africa | | 46,240 | | | 0 | | | | 0 | | | | 46,240 | | Middle East and Africa | | 60,798 | | | — | | | | — | | | | 60,798 | |
Eastern Europe | Eastern Europe | | 12,390 | | | 0 | | | | 0 | | | | 12,390 | | Eastern Europe | | 15,185 | | | — | | | | — | | | | 15,185 | |
Total Revenues | Total Revenues | | $ | 668,057 | | | $ | 434,489 | | | | $ | 252,974 | | | | $ | 1,355,520 | | Total Revenues | | $ | 800,433 | | | $ | 585,891 | | | | $ | 256,652 | | | | $ | 1,642,976 | |
Key Product and Service Groups (a): | Key Product and Service Groups (a): | | | | | | | | | | | Key Product and Service Groups (a): | | | | | | | | | | |
Environmental services related to resource recovery for metals manufacturing and related logistical services | Environmental services related to resource recovery for metals manufacturing and related logistical services | | $ | 563,159 | | | $ | 0 | | | | $ | 0 | | | | $ | 563,159 | | Environmental services related to resource recovery for metals manufacturing and related logistical services | | $ | 688,923 | | | $ | — | | | | $ | — | | | | $ | 688,923 | |
Applied products | Applied products | | 95,019 | | | 0 | | | | 0 | | | | 95,019 | | Applied products | | 100,706 | | | — | | | | — | | | | 100,706 | |
Environmental systems for aluminum dross and scrap processing | Environmental systems for aluminum dross and scrap processing | | 9,879 | | | 0 | | | | 0 | | | | 9,879 | | Environmental systems for aluminum dross and scrap processing | | 10,804 | | | — | | | | — | | | | 10,804 | |
Railway track maintenance equipment | Railway track maintenance equipment | | 0 | | | 0 | | | | 138,519 | | | | 138,519 | | Railway track maintenance equipment | | — | | | — | | | | 140,116 | | | | 140,116 | |
After market parts and services; safety and diagnostic technology | After market parts and services; safety and diagnostic technology | | 0 | | | 0 | | | | 92,800 | | | | 92,800 | | After market parts and services; safety and diagnostic technology | | — | | | — | | | | 94,470 | | | | 94,470 | |
Railway contracting services | Railway contracting services | | 0 | | | 0 | | | | 21,655 | | | | 21,655 | | Railway contracting services | | — | | | — | | | | 22,066 | | | | 22,066 | |
Waste processing, recycling, reuse and transportation solutions | Waste processing, recycling, reuse and transportation solutions | | 0 | | | 434,489 | | | | 0 | | | | 434,489 | | Waste processing, recycling, reuse and transportation solutions | | — | | | 585,891 | | | | — | | | | 585,891 | |
Total Revenues | Total Revenues | | $ | 668,057 | | | $ | 434,489 | | | | $ | 252,974 | | | | $ | 1,355,520 | | Total Revenues | | $ | 800,433 | | | $ | 585,891 | | | | $ | 256,652 | | | | $ | 1,642,976 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2020 |
(In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | | | Harsco Rail Segment | | | | Consolidated Totals |
Primary Geographical Markets (a) (b): | | | | | | | | | | | | |
North America | | $ | 186,210 | | | $ | 434,489 | | | | | $ | 173,039 | | | | | $ | 793,738 | |
Western Europe | | 271,795 | | | — | | | | | 56,435 | | | | | 328,230 | |
Latin America (c) | | 87,453 | | | — | | | | | 1,592 | | | | | 89,045 | |
Asia-Pacific | | 63,969 | | | — | | | | | 21,908 | | | | | 85,877 | |
Middle East and Africa | | 46,240 | | | — | | | | | — | | | | | 46,240 | |
Eastern Europe | | 12,390 | | | — | | | | | — | | | | | 12,390 | |
Total Revenues | | $ | 668,057 | | | $ | 434,489 | | | | | $ | 252,974 | | | | | $ | 1,355,520 | |
| | | | | | | | | | | | |
| | | | Nine Months Ended | | Nine Months Ended |
| | September 30, 2019 | | September 30, 2020 |
(In thousands) | (In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | | Harsco Rail Segment | | | Consolidated Totals | (In thousands) | | Harsco Environmental Segment | | Harsco Clean Earth Segment | | | Harsco Rail Segment | | | Consolidated Totals |
Primary Geographical Markets (a) (b): | | | | | | | | | | | |
North America | | $ | 229,537 | | | $ | 87,639 | | | | $ | 172,566 | | | | $ | 489,742 | | |
Western Europe | | 290,125 | | | 0 | | | | 30,960 | | | | 321,085 | | |
Latin America (c) | | 108,390 | | | 0 | | | | 1,915 | | | | 110,305 | | |
Asia-Pacific | | 104,446 | | | 0 | | | | 19,342 | | | | 123,788 | | |
Middle East and Africa | | 44,959 | | | 0 | | | | 0 | | | | 44,959 | | |
Eastern Europe | | 14,076 | | | 0 | | | | 0 | | | | 14,076 | | |
Total Revenues | | $ | 791,533 | | | $ | 87,639 | | | | $ | 224,783 | | | | $ | 1,103,955 | | |
| | Key Product and Service Groups (a): | Key Product and Service Groups (a): | | | | | | Key Product and Service Groups (a): | | | | | |
Environmental services related to resource recovery for metals manufacturing and related logistical services | Environmental services related to resource recovery for metals manufacturing and related logistical services | | $ | 673,244 | | | $ | 0 | | | | $ | 0 | | | | $ | 673,244 | | Environmental services related to resource recovery for metals manufacturing and related logistical services | | $ | 563,701 | | | $ | — | | | | $ | — | | | | $ | 563,701 | |
Applied products | Applied products | | 98,966 | | | 0 | | | | 0 | | | | 98,966 | | Applied products | | 95,019 | | | — | | | | — | | | | 95,019 | |
Environmental systems for aluminum dross and scrap processing | Environmental systems for aluminum dross and scrap processing | | 19,323 | | | 0 | | | | 0 | | | | 19,323 | | Environmental systems for aluminum dross and scrap processing | | 9,337 | | | — | | | | — | | | | 9,337 | |
Railway track maintenance equipment | Railway track maintenance equipment | | 0 | | | 0 | | | | 102,801 | | | | 102,801 | | Railway track maintenance equipment | | — | | | — | | | | 138,519 | | | | 138,519 | |
After market parts and services; safety and diagnostic technology | After market parts and services; safety and diagnostic technology | | 0 | | | 0 | | | | 105,101 | | | | 105,101 | | After market parts and services; safety and diagnostic technology | | — | | | — | | | | 92,800 | | | | 92,800 | |
Railway contracting services | Railway contracting services | | 0 | | | 0 | | | | 16,881 | | | | 16,881 | | Railway contracting services | | — | | | — | | | | 21,655 | | | | 21,655 | |
Waste processing, recycling, reuse and transportation solutions | Waste processing, recycling, reuse and transportation solutions | | 0 | | | 87,639 | | | | 0 | | | | 87,639 | | Waste processing, recycling, reuse and transportation solutions | | — | | | 434,489 | | | | — | | | | 434,489 | |
Total Revenues | Total Revenues | | $ | 791,533 | | | $ | 87,639 | | | | $ | 224,783 | | | | $ | 1,103,955 | | Total Revenues | | $ | 668,057 | | | $ | 434,489 | | | | $ | 252,974 | | | | $ | 1,355,520 | |
(a) The Company's acquisition of ESOL closed on April 6, 2020 and the Company's acquisition of Clean Earth closed on June 28, 2019.2020. The results of both are included in the Harsco Clean Earth Segment. The operating results of the former Harsco Industrial Segment have been reflected as discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented. See Note 3, Acquisitions and Dispositions, for additional details.
(b) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
(c) Includes Mexico.
The Company may receive payments in advance of earning revenue, which are treated as Advances on contracts on the Company's Condensed Consolidated Balance Sheets. The Company may recognize revenue in advance of being able to contractually invoice the customer, which is treated as Contract assets on the Company's Condensed Consolidated Balance Sheets. Non-current contract assets are included in Other assets on the Company's Condensed Consolidated Balance Sheets. Contract assets are transferred to Trade accounts receivable, net, when the right to payment becomes unconditional. Contract assets and Contract liabilities are reported as a net position, on a contract-by-contract basis, at the end of each reporting period. These instances are primarily related to the Harsco Rail Segment.
The Company had Contract assets totaling $57.6$111.8 million and $31.2$60.1 million at September 30, 20202021 and December 31, 2019,2020, respectively. The increase is due principally to recognition of additional contract assets recognized in excess of the transfer of contract assets transferred to accounts receivable, during the nine months ended September 30, 2020, primarily in the Harsco Rail Segment. The Company had Advances on contracts totaling $86.0$67.8 million and $60.3$84.9 million at September 30, 20202021 and December 31, 2019,2020, respectively. The increasedecrease is due principally to the recognition of revenue on previously received Advances on contracts in excess of the receipt of new advances on contracts in excess of recognition of revenue partially offset by revenue recognized related to advancesduring the period, primarily in the Harsco Rail Segment. During the three and nine months ended September 30, 2021, the Company recognized approximately $14 million and $44 million, respectively, of revenue related to amounts previously included in Advances on contracts. During the three and nine months ended September 30, 2020, the Company recognized approximately $20 million and $55 million, respectively, of revenue related to amounts previously included in Advances on contracts. During the three and nine months ended September 30, 2019 the Company recognized approximately $17 million and $53 million, respectively, of revenue related to amounts previously included in Advances on contracts. Additionally, during the three months ended September 30, 2019, the Company recognized revenue of $0.8 million, in the Harsco Rail Segment, related to performance obligations partially satisfied in prior periods.
At September 30, 20202021 the Harsco Environmental Segment had remaining, fixed, unsatisfied performance obligations where the expected contract duration exceeds one year totaling $102.5$88.8 million. Of this amount, $30.1$20.9 million is expected to be fulfilled by September 30, 2021, $20.1 million by September 30, 2022, $15.8$20.3 million by September 30, 2023, $13.2$19.3 million by September 30, 2024, $19.2 million by September 30, 2025 and the remainder thereafter. These amounts exclude any variable fees, fixed fees subject to indexation and any performance obligations expected to be satisfied within one year. The decrease from December 31, 2019 is primarily due to the renegotiation of a contract with a customer in the U.K. who had entered into administration.
At September 30, 20202021 the Harsco Rail Segment had remaining, fixed, unsatisfied performance obligations where the remaining expected contract duration exceeds one year totaling $364.0$246.3 million. Of this amount, $133.0$117.8 million is expected to be fulfilled by September 30, 2021, $131.5 million by September 30, 2022, $64.0$73.0 million by September 30, 2023, $30.8$37.4 million by September 30, 2024, $18.0 million by September 30, 2025 and the remainder thereafter. These amounts exclude any variable fees, fixed fees subject to indexation and any performance obligations expected to be satisfied within one year.
The increase fromCompany recognized an initial estimated forward loss provision related to the contracts with SBB of $45.1 million for the year ended December 31, 20192016. The Company recorded an additional forward loss provision of $1.8 million for the year ended December 31, 2018. At September 30, 2021 and December 31, 2020 the remaining estimated forward loss provision of $3.8 million and $4.4 million, respectively, is primarily attributable to new contract signingsincluded in the U.S., Indiacaption Other current liabilities on the Condensed Consolidated Balance Sheets. The estimated forward loss provision represents the Company's best estimate based on currently available
information. It is possible that the Company's overall estimate of costs to complete these contracts may increase, which would result in an additional estimated forward loss provision at such time.
The Company recognized $5.4 million and Germany.$11.8 million of revenues for the contracts with SBB on an over time basis, utilizing a cost-to-cost method for the three months ended September 30, 2021 and 2020, respectively and $15.4 million and $29.5 million for the nine months ended September 30, 2021 and 2020, respectively. The Company has substantially completed the first contract and is approximately 81% complete on the second contract with SBB as of September 30, 2021.
The Company provides assurance type warranties primarily for product sales in the Harsco Rail Segment. These warranties are typically not priced or negotiated separately (there is no option to separately purchase the warranty) or the warranty does not provide customers with a service in addition to the assurance that the product complies with agreed-upon specifications. Accordingly, such warranties do not represent separate performance obligations.
Concurrent with the ESOL acquisition, the Company entered into an agreement with Stericycle Inc. related to certain Stericycle, Inc. customers who receive services from both ESOL and other Stericycle, Inc. businesses under a single contractual arrangement. The revenue pertaining to services rendered to these customers are invoiced centrally through Stericycle, Inc. billing systems and ESOL's portion of the revenue, less a management fee, is then distributed to the Company.
17. Other (Income) Expenses, Net
The major components of this Condensed Consolidated Statements of Operations caption were as follows:
| | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
| Employee termination benefit costs | Employee termination benefit costs | | $ | 798 | | | $ | 1,591 | | | $ | 6,694 | | | $ | 5,107 | | Employee termination benefit costs | | $ | (65) | | | $ | 798 | | | $ | 1,285 | | | $ | 6,694 | |
| Other costs to exit activities | Other costs to exit activities | | 13 | | | 918 | | | 478 | | | 3,265 | | Other costs to exit activities | | (27) | | | 13 | | | 611 | | | 478 | |
| Impaired asset write-downs | Impaired asset write-downs | | 2 | | | 129 | | | 75 | | | 343 | | Impaired asset write-downs | | 41 | | | 2 | | | 203 | | | 75 | |
Contingent consideration adjustments | Contingent consideration adjustments | | 2,437 | | | (906) | | | 2,437 | | | (4,417) | | Contingent consideration adjustments | | — | | | 2,437 | | | — | | | 2,437 | |
| Net gains | Net gains | | (7) | | | (1,353) | | | (255) | | | (3,624) | | Net gains | | (1,575) | | | (7) | | | (8,622) | | | (255) | |
Other | Other | | 390 | | | 4 | | | (355) | | | (265) | | Other | | (1,209) | | | 390 | | | (1,287) | | | (355) | |
Other expenses, net | | $ | 3,633 | | | $ | 383 | | | $ | 9,074 | | | $ | 409 | | |
Other (income) expenses, net | | Other (income) expenses, net | | $ | (2,835) | | | $ | 3,633 | | | $ | (7,810) | | | $ | 9,074 | |
18. Components of Accumulated Other Comprehensive Loss
AOCI is included on the Condensed Consolidated Statements of Stockholders' Equity. The components of AOCI, net of the effect of income taxes, and activity for the nine months ended September 30, 20192020 and 20202021 was as follows:
| | | Components of AOCI, Net of Tax | | Components of AOCI, Net of Tax |
(In thousands) | (In thousands) | | Cumulative Foreign Exchange Translation Adjustments | | Effective Portion of Derivatives Designated as Hedging Instruments | | Cumulative Unrecognized Actuarial Losses on Pension Obligations | | Unrealized Gain (Loss) on Marketable Securities | | Total | (In thousands) | | Cumulative Foreign Exchange Translation Adjustments | | Effective Portion of Derivatives Designated as Hedging Instruments | | Cumulative Unrecognized Actuarial Losses on Pension Obligations | | Unrealized Gain (Loss) on Marketable Securities | | Total |
Balance at December 31, 2018 | | $ | (159,810) | | | $ | 1,389 | | | $ | (408,655) | | | $ | (31) | | | $ | (567,107) | | |
Adoption of new accounting standard | | — | | | 0 | | | (21,429) | | (a) | — | | | (21,429) | | |
Balance at December 31, 2019 | | Balance at December 31, 2019 | | $ | (143,340) | | | $ | (3,717) | | | $ | (440,562) | | | $ | (3) | | | $ | (587,622) | |
| OCI before reclassifications | OCI before reclassifications | | (20,513) | | (b) | (5,889) | | (c) | 11,630 | | (b) | 19 | | | (14,753) | | OCI before reclassifications | | (48,150) | | (a) | (2,226) | | (b) | 9,905 | | (a) | (22) | | | (40,493) | |
Amounts reclassified from AOCI, net of tax | Amounts reclassified from AOCI, net of tax | | (1,763) | | | 1,404 | | | 14,021 | | | 0 | | | 13,662 | | Amounts reclassified from AOCI, net of tax | | 12,906 | | | 604 | | | 18,132 | | | — | | | 31,642 | |
| Total OCI | Total OCI | | (22,276) | | | (4,485) | | | 25,651 | | | 19 | | | (1,091) | | Total OCI | | (35,244) | | | (1,622) | | | 28,037 | | | (22) | | | (8,851) | |
OCI attributable to noncontrolling interests | | 1,868 | | | 0 | | | 0 | | | 0 | | | 1,868 | | |
Less: OCI attributable to noncontrolling interests | | Less: OCI attributable to noncontrolling interests | | 579 | | | — | | | — | | | — | | | 579 | |
OCI attributable to Harsco Corporation | OCI attributable to Harsco Corporation | | (20,408) | | | (4,485) | | | 25,651 | | | 19 | | | 777 | | OCI attributable to Harsco Corporation | | (35,823) | | | (1,622) | | | 28,037 | | | (22) | | | (9,430) | |
Balance at September 30, 2019 | | $ | (180,218) | | | $ | (3,096) | | | $ | (404,433) | | | $ | (12) | | | $ | (587,759) | | |
Balance at September 30, 2020 | | Balance at September 30, 2020 | | $ | (179,163) | | | $ | (5,339) | | | $ | (412,525) | | | $ | (25) | | | $ | (597,052) | |
| | | Components of AOCI, Net of Tax | | Components of AOCI, Net of Tax |
(In thousands) | (In thousands) | | Cumulative Foreign Exchange Translation Adjustments | | Effective Portion of Derivatives Designated as Hedging Instruments | | Cumulative Unrecognized Actuarial Losses on Pension Obligations | | Unrealized Gain (Loss) on Marketable Securities | | Total | (In thousands) | | Cumulative Foreign Exchange Translation Adjustments | | Effective Portion of Derivatives Designated as Hedging Instruments | | Cumulative Unrecognized Actuarial Losses on Pension Obligations | | Unrealized Gain (Loss) on Marketable Securities | | Total |
Balance at December 31, 2019 | | $ | (143,340) | | | $ | (3,717) | | | $ | (440,562) | | | $ | (3) | | | $ | (587,622) | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | | $ | (125,392) | | | $ | (5,840) | | | $ | (514,500) | | | $ | (9) | | | $ | (645,741) | |
| OCI before reclassifications | OCI before reclassifications | | (48,150) | | (b) | (2,226) | | (c) | 9,905 | | (b) | (22) | | | (40,493) | | OCI before reclassifications | | (15,437) | | (a) | 257 | | (b) | 6,628 | | (a) | 25 | | | (8,527) | |
Amounts reclassified from AOCI, net of tax | Amounts reclassified from AOCI, net of tax | | 12,906 | | | 604 | | | 18,132 | | | 0 | | | 31,642 | | Amounts reclassified from AOCI, net of tax | | — | | | 1,488 | | | 17,184 | | | — | | | 18,672 | |
| Total OCI | Total OCI | | (35,244) | | | (1,622) | | | 28,037 | | | (22) | | | (8,851) | | Total OCI | | (15,437) | | | 1,745 | | | 23,812 | | | 25 | | | 10,145 | |
OCI attributable to noncontrolling interests | | (579) | | | 0 | | | 0 | | | 0 | | | (579) | | |
Less: OCI attributable to noncontrolling interests | | Less: OCI attributable to noncontrolling interests | | (837) | | | — | | | — | | | — | | | (837) | |
OCI attributable to Harsco Corporation | OCI attributable to Harsco Corporation | | (35,823) | | | (1,622) | | | 28,037 | | | (22) | | | (9,430) | | OCI attributable to Harsco Corporation | | (14,600) | | | 1,745 | | | 23,812 | | | 25 | | | 10,982 | |
Balance at September 30, 2020 | | $ | (179,163) | | | $ | (5,339) | | | $ | (412,525) | | | $ | (25) | | | $ | (597,052) | | |
Balance at September 30, 2021 | | Balance at September 30, 2021 | | $ | (139,992) | | | $ | (4,095) | | | $ | (490,688) | | | $ | 16 | | | $ | (634,759) | |
(a) Represents the adoption of the new accounting standard on January 1, 2019 related to stranded tax effects from the Tax Cuts and Jobs Act.
(b) Principally foreign currency fluctuation.
(b) Net change from periodic revaluations.
(c) Net change from periodic revaluations.
Amounts reclassified from AOCI were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | Nine Months Ended | | Location on the Condensed Consolidated Statements of Operations |
| September 30 | | September 30 |
| 2020 | | 2019 | | 2020 | | 2019 |
Recognition of cumulative foreign currency translation adjustments: |
Gain on substantial liquidation of subsidiaries (d) | | $ | 0 | | | $ | (154) | | | $ | 12,906 | | | $ | (2,425) | | | Other expenses, net |
Loss on substantial liquidation of subsidiaries (d) | | 0 | | | 662 | | | 0 | | | 662 | | | Gain on sale of discontinued businesses |
Amortization of cash flow hedging instruments: |
Foreign currency exchange forward contracts | | $ | 174 | | | $ | (512) | | | $ | (1,562) | | | $ | (977) | | | Product revenues |
Foreign currency exchange forward contracts | | 0 | | | 0 | | | 0 | | | 44 | | | Cost of services sold |
| | | | | | | | | | |
CCIRs | | 312 | | | 291 | | | 912 | | | 908 | | | Interest expense |
Interest rate swaps | | 739 | | | (76) | | | 1,849 | | | (648) | | | Interest expense |
Interest rate swaps | | 0 | | | 0 | | | 0 | | | 2,741 | | | Income from discontinued businesses |
Total before taxes | | 1,225 | | | (297) | | | 1,199 | | | 2,068 | | | |
Income taxes | | (408) | | | (21) | | | (595) | | | (664) | | | |
Total reclassification of cash flow hedging instruments, net of tax | | $ | 817 | | | $ | (318) | | | $ | 604 | | | $ | 1,404 | | | |
| | | | | | | | | | |
Amortization of defined benefit pension items (e): |
Recognized losses | | $ | 4,962 | | | $ | 4,721 | | | $ | 14,799 | | | $ | 14,761 | | | Defined benefit pension income (expense) |
Recognized prior service costs | | 113 | | | 61 | | | 326 | | | 192 | | | Defined benefit pension income (expense) |
| | | | | | | | | | |
Settlement/curtailment losses | | 0 | | | 0 | | | 0 | | | 129 | | | Defined benefit pension income (expense) |
Pension liability transfer - discontinued business | | 0 | | | 0 | | | 5,363 | | | 0 | | | Gain on sale of discontinued businesses |
Total before taxes | | 5,075 | | | 4,782 | | | 20,488 | | | 15,082 | | | |
Income taxes | | (323) | | | (340) | | | (2,356) | | | (1,061) | | | |
Total reclassification of defined benefit pension items, net of tax | | $ | 4,752 | | | $ | 4,442 | | | $ | 18,132 | | | $ | 14,021 | | | |
(d) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | Nine Months Ended | | Location on the Condensed Consolidated Statements of Operations |
| September 30 | | September 30 |
| 2021 | | 2020 | | 2021 | | 2020 |
Recognition of cumulative foreign currency translation adjustments: |
| | | | | | | | | | |
Gain on substantial liquidation of subsidiaries (c) | | $ | — | | | $ | — | | | — | | | 12,906 | | | Gain on sale of discontinued businesses |
Amortization of cash flow hedging instruments: |
Foreign currency exchange forward contracts | | $ | (418) | | | $ | 174 | | | $ | (465) | | | $ | (1,562) | | | Product revenues |
| | | | | | | | | | |
| | | | | | | | | | |
CCIRs | | — | | | 312 | | | — | | | 912 | | | Interest expense |
Interest rate swaps | | 872 | | | 739 | | | 2,599 | | | 1,849 | | | Interest expense |
| | | | | | | | | | |
Total before taxes | | 454 | | | 1,225 | | | 2,134 | | | 1,199 | | | |
Income taxes | | (148) | | | (408) | | | (646) | | | (595) | | | |
Total reclassification of cash flow hedging instruments, net of tax | | $ | 306 | | | $ | 817 | | | $ | 1,488 | | | $ | 604 | | | |
| | | | | | | | | | |
Amortization of defined benefit pension items (d): |
Actuarial losses | | $ | 5,922 | | | $ | 4,962 | | | $ | 17,877 | | | $ | 14,799 | | | Defined benefit pension income |
Prior service costs | | 125 | | | 113 | | | 381 | | | 326 | | | Defined benefit pension income |
| | | | | | | | | | |
| | | | | | | | | | |
Pension liability transfer - discontinued business | | — | | | — | | | — | | | 5,363 | | | Gain on sale of discontinued businesses |
Total before taxes | | 6,047 | | | 5,075 | | | 18,258 | | | 20,488 | | | |
Income taxes | | (358) | | | (323) | | | (1,074) | | | (2,356) | | | |
Total reclassification of defined benefit pension items, net of tax | | $ | 5,689 | | | $ | 4,752 | | | $ | 17,184 | | | $ | 18,132 | | | |
(c) No tax impact.
(e)(d) These AOCI components are included in the computation of net periodic pension costs. See Note 10, Employee Benefit Plans, for additional details.
19. Subsequent Event
On November 2, 2021 the Company announced it will explore strategic alternatives for the Rail business, with the intention to sell the business. As a result, the Rail segment will be classified as held for sale and reported as discontinued operations beginning in the fourth quarter of 2021.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements as well as the audited consolidated financial statements of the Company, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 which includes additional information about the Company’s critical accounting policies, contractual obligations, practices and the transactions that support the financial results, and provides a more comprehensive summary of the Company’s outlook, trends and strategies for 20202021 and beyond.
Certain amounts included in Item 2 of this Quarterly Report on Form 10-Q 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," "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 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 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 capital or commodity markets; (14)(15) failure to retain key management and employees; (15) the amount and timing of repurchases of the Company's common stock, if any; (16) the outcome of any disputes with customers, contractors and subcontractors; (17) the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged, have inadequate liquidity or whose business is significantly impacted by COVID-19) to maintain their credit availability; (18) implementation of environmental remediation matters; (19) risk and uncertainty associated with intangible assets and (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 II, Item 1A, "Risk Factors," below, as well as Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, and Part II, Item 1A, Risk Factors herein.2020. 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.
Executive Overview
The Company is a market-leading, global provider of environmental solutions for industrial, retail and medical waste streams, and innovative equipment and technology for the rail sector. The Company's operations consist of three reportable segments: Harsco Environmental, Harsco Clean Earth and Harsco Rail. The Company is working towards transforming Harsco into a single-thesis environmental solutions company that is a global leader in the markets the Company serves. The Harsco Environmental Segment operates primarily under long-term contracts, providing critical environmental services and material processing to the global steel and metals industries, including zero waste solutions for manufacturing byproducts within the metals industry. The Harsco Clean Earth Segment provides waste management services including transportation, specialty waste processing, recycling and beneficial reuse solutions for hazardous waste, contaminated materials and dredged volumes. 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. The Company has locations in approximately 30 countries, including the U.S. The Company was incorporated in 1956.
In April 2020 the Company completed the previously announced 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 thirteen permitted TSDF facilities and forty-eight 10-day transfer facilities serving more than ninety thousand customer locations utilizing a fleet of more than seven hundred vehicles. The acquisition of ESOL furthers Harsco’s transformation into a global, market-leading, single-thesis environmental solutions platform. The results of ESOL are included in the Harsco Clean Earth Segment.
InOn March 2020, the Company raised $280.0 million pursuant to the New Term Loan as a new tranche under its existing Senior Secured Credit Facilities. The New Term Loan was fully drawn on April 6, 2020 to partially fund the ESOL acquisition. Borrowings under the New Term Loan bear interest at a rate per annum ranging from 150 to 225 basis points over adjusted LIBOR (as defined in the Credit Agreement). The New Term Loan will mature on June 28, 2024. The Company capitalized $1.9 million of fees related to the issuance of the New Term Loan.
In both March 2020 and June 2020,10, 2021, the Company amended theits 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 debt to consolidated adjusted EBITDAleverage ratio covenant. As a result of these amendments,In addition, the net debtCompany issued New Term Loans, using the proceeds to consolidated adjusted EBITDA ratio covenant has been increased to 5.75 throughrepay in full the outstanding Term Loan A and Term Loan B. The New Term Loans mature on March 2021 and then decreasing quarterly until reaching 4.75 in December 2021. There10, 2028, or earlier, on the date that is no change91 days prior to the previously agreed interest rates as long asmaturity date of the Company's total leverage ratio does5.75% Senior Notes due 2027 if such Senior Notes are outstanding or have not equal or exceed 4.50been refinanced at which time it would increase by 25 basis points. During the nine months ended September 30, 2020, the Company recognized $1.9 million of fees and expenses related to the amended Senior Secured Credit Facilitiessuch time. See Note 9, Debt, in the caption Unused debt commitment and amendment fees on the Condensed Consolidated Statement of Operations.
In January 2020 the Company sold IKGPart I, Item 1, "Financial Statements," for $85.0 million, including a note receivable with a face value of $40.0 million (initial fair value $34.3 million) and recognized a gain on sale of $18.4 million pre-tax (or approximately $9 million after-tax). This disposal, along with the disposals of AXC and PK in 2019, accelerated the transformation of the Company into a global, market-leading, single-thesis environmental solutions platform.additional details.
Beginning in March 2020 overall global economic conditions were significantly impacted by COVID-19. Business conditions have slowly improved since the mid-point of the second quarter, with the ongoing COVID-19 impacts varying by end market as well as local conditions (including applicable government mandates). The ultimate duration and impact of COVID-19 on the Company and its customers' operations is presently unclear, though the Company expects impacts to continue for at least the next few quarters. The Company is operating as a provider of certain essential services, and it continues to take actionstook steps to protect all stakeholders and to minimize the operational and financial impacts of COVID-19. Looking forward the impact of COVID-19 where possible. Work safety and flexibility measures have been implemented. In addition,on the Company is also focused on actions to adjust its cost structure, reduce capitalunclear, however business conditions have steadily improved since the second quarter of 2020 and operating expenditures, and to preserve its financial flexibility and liquidity position.the Company anticipates that business fundamentals will strengthen in 2021. Please refer to the below discussion of business outlook and Part II, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for additional information related to the potential impacts of COVID-19 on the Company.
Highlights from the third quarter and nine months ended September 30, 20202021 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 the third quarter and nine months ended September 30, 20202021 increased approximately 20%7% and 23%21%, respectively, compared with the third quarter and nine months ended September 30, 2019.2020. The primary drivers for these increases were the acquisitionsacquisition of Clean EarthESOL for the nine months ended September 30, 2021; and ESOL as well asfor the third quarter and nine months ended September 30, 2021 increased revenue related to maintenance-of-
way equipment sales in the Harsco Rail Segment, partially offset by lower customer productionvolumes in the Harsco Environmental Segment inclusive of the impacts from COVID-19,and Harsco Clean Earth Segment and the impact of foreign currency translation.
•Operating income from continuing operations for the third quarter and nine months ended September 30, 2020 decreased approximately 89%2021 increased $24.9 million and 88%,$81.2 million, respectively, compared with the third quarter and nine months ended September 30, 2019.2020. The primary drivers for these decreasesincreases were decreased customer production levelsincreased volumes in the Harsco Environmental Segment inclusiveand the Clean Earth Segment; the acquisition of the impacts of COVID-19; incrementalESOL; acquisition and integration costs primarily related to the ESOL acquisition; the timing and mix of sales in the Harsco Rail Segment and severance costs, primarilyacquisition, which were incurred during the first quarternine months of 2020 and not repeated; and termination benefit costs of approximately $6$5.2 million which were incurred in the first nine months of 2020 in the Harsco Environmental Segment. These decreases were partially offset by the inclusion of operating results for ESOL, as well as lower selling, general and administrative expenses in the Harsco Environmental and Harsco Rail Segments, and in Corporate (exclusive of the aforementioned incremental acquisition and integration costs).
•Diluted lossearnings per common share from continuing operations attributable to Harsco Corporation for the third quarter ended September 30, 2020 was $0.10, a decrease2021 were $0.11, an increase compared with the Diluted earningsdiluted loss per common share from continuing operations of $0.22$0.10 during third quarter ended September 30, 2019.2020. Diluted lossearnings per common share from continuing operations attributable to Harsco Corporation for the nine months ended September 30, 20202021 was $0.35$0.31, an increase compared with the Diluted earningsdiluted loss per common share from continuing operations of $0.31$0.35 during the nine months ended September 30, 2019. In addition to the factors2020. The primary drivers of this increase are those noted above for revenue and operating income from continuing operations, the primary driver of this decrease waspartially offset by increased interest expense partially offset by a decrease indue to higher debt levels, debt-related transaction expenses defined benefit pension income and the effect of income taxes.
•Cash flows fromprovided by operating activities for the nine months ended September 30, 20202021 were $42.3$46.8 million, a decreasean increase of $7.8$4.5 million compared with the Cash flows fromprovided by operating activities for the nine months ended September 30, 2019.2020. The primary driver for this increase was higher cash net income partially offset by an unfavorable change in working capital. The primary drivers for this decrease were lower net income (excluding the impacts of the IKG sale), including the incremental acquisition and integration costs principally related to the ESOL acquisition; partially offset by favorableunfavorable changes in net working capital primarily due to additionalincluded lower customer advances and an increase in contract assets in the Harsco Rail Segment; improved collection of accounts receivable and timing of inventories. The decrease also includes the impact of taxes paidSegment related to the salecontinued build of AXClong-term contracts and the timing of income taxes receivable.sales and collections of accounts receivable in the Harsco Environmental and Harsco Clean Earth segments.
•Capital expenditures for purchases of property, plant and equipment for the nine months ended September 30, 20202021 were $79.1$109.5 million, a decreasean increase of $68.0$30.4 million or 46.2%38.4% compared with the first nine months of 2019. The decrease was the result of the Company's goal of maintaining financial flexibility and strengthening cash flow during COVID-19.ended September 30, 2020.
Looking forward, theThe Company expectsmaintains a positive long-term outlook across all businesses howeversupported by favorable underlying growth characteristics in its businesses and investments by the Company to further supplement growth. Financial results will likely continue to be negativelyhave been impacted by the global COVID-19 pandemic that began in 2020. This business pressure was most significant during the coming quarters. The Company is continuing to work diligentlysecond and safely to provide customers with servicesthird quarters of 2020, and products, however it anticipateswhile the current slow-down in customer demand will persistpace of the recovery varies by end market, and the ultimate extentvarious economic pressures remain, such as supply-chain challenges as well as labor availability and duration of such impacts oninflation, the Company's businesses is not presently known.financial performance has improved meaningfully since mid-2020.
The Company’s view for the remainder of 20202021 and beyond is supported by the following factors, which should be considered in the context of other risks, trends and strategies in the Company's Annual Report on Form 10-K for the year ended December 31, 20192020 together with those described at the beginning of this section as well as in Part II, Item 1A, "Risk Factors":section:
•The Harsco Environmental Segment continues to operate in essentially all countriesoperates throughout the world in which it has a presence to support critical metal production, although the Company has been impacted by an overall decline in global steel demand. Several customer mill locations where production was temporarily idled during March and Aprilproduction. In 2021, financial performance of this segment is expected to strengthen versus 2020 as a result of COVID-19, have restarted though overall production remains below normalized levelsimproved demand for environmental services and will remain so until underlying demand recovers. Estimated customer mill utilization decreased by 11%applied products as well as increased commodity prices and 14% for the third quarter and nine months ended September 30, 2020, respectively, compared with the same periods in the prior year.positive contributions from new contracts or growth investments. Over the longer-term the Company expects that the Harsco Environmental Segment's return to growth will be driven by investments, innovation and economic growth that supports higher customerglobal steel production.consumption as well as investments and innovation that support the environmental solutions needs of customers.
•The Harsco Clean Earth Segment locations continue operating as an essential services provider,operate throughout the U.S. by performing critical environmental services, throughout the U.S. In the near term, however, it is likely that recent decreases in construction and industrial related activity, resulting from COVID-19, will impact the contaminated materials and hazardous waste lines of business.services. The impact of COVID-19 on thesegment's hazardous waste line of business includingis economically resilient as proven by its recovery from the recently completed ESOL acquisition,pandemic, while its contaminated materials business has been less significant givenlagged in its recovery due to constraints on non-residential construction activity in certain geographies and governmental constraints on project spending. With that certain end-markets such as medical waste and retail have recovered more quickly or proven more resilient. In addition, the dredged materials line of business issaid, financial results for Clean Earth are expected to be less impacted by COVID-19improve in 2021 as a result of organic growth within its hazardous waste processing business and has seenthe inclusion of ESOL for an increase in volumes foradditional quarter as well as the first nine monthsimprovement benefits anticipated from the integration of 2020 when compared withESOL and despite the same period in the prior year. Over the longer-termcurrent challenges related to labor, transportation and material inflation; and disposal constraints. Beyond 2021, the Company expects this segment to benefit from positive underlying market trends, further growth opportunities including the recently completed ESOL transaction, positive market trends,and operational synergy opportunities andas well as from the less cyclical and recurring nature of this businessbusiness. These dynamics are expected to provide favorable returns on the Company's recent investments.investments over time.
•The Harsco Rail Segment continues to fulfill ordersmanufacturers products critical to global transportation, supported by recent actions to strengthen and has increased capacity during 2020 through the implementation ofincrease its Supply Chain Operation Recovery program, allowingmanufacturing capabilities and capacity. These operational investments position the business to deliver on its backlog in the coming years. In the near term,Through 2020, the Harsco Rail Segment has begun to bewas impacted by a decrease in certain short-cycle equipment, aftermarket and technology sales as a result of COVID-19, primarily inCOVID-19. In 2021, the U.S., which is likelyCompany expects that global demand for rail maintenance equipment, aftermarket parts and technology products to continue inimprove compared with the coming quarters. Overall,prior year. These benefits will be partially offset by input cost inflation and higher selling, general and administrative expenditures. More broadly, the Harsco Rail Segment is supported by recorda strong backlog and the longer-term outlook for this business remains strong.positive, supported by future infrastructure investments, economic development in emerging economies, rail electrification in certain geographies, safety awareness and automation.
•The Company announced plans,undertook significant actions to reduce corporate costs and capital spending in April 2020 to lower 2020 capital expenditures by approximately $75 million from an originally expected range of $170 million to $180 million, exclusive of the ESOL acquisition, with the goal of preserving positive free cash flow (cash flows from operations; deduct capital expenditures; add back proceeds from asset sales; add back transaction-related expenditures) for the year.
•Additionally, the Company has made, and will continue to make, corporate cost reductions during 2020 to partially offset the impact of COVID-19. The Company has developed a tiered approach to potential supplemental cost mitigation efforts should the impacts of COVID-19 become more severe or prolonged in nature.
•In the third quarter of 2020, a customer of the Harsco Environmental Segment in China ceased steel making operations at its steel mill site in order to relocate the operations to a new site, as a result of a government mandate to improve environmental conditions of the area. The Company will continue to provide services to the same customer at the new site. The net book value of the idled equipment associated with the previous location is approximately $18 million. The customer has entered into an agreement with the government where it will receive compensation for the losses the customer has incurred as a result of the forced shutdown. Based onpandemic. A portion of these costs and expenditures have returned in the long-term relationship withcurrent year, however the customer, the Company believes it will fully recover the book value of the equipment thus has not recorded a provision for asset impairment as of September 30, 2020. However, the Company will continueCompany's disciplined approach to evaluate changesoverall costs and free cash flow remains in facts and circumstances and record any impairment charge when and if indicated.place.
•Interest expense for 20202021 is expected to increase due to higher average debt balances during 2020 andfollowing the impactpurchase of a higher weighted-average interest rate resulting from the issuance of the Notes in 2019 and the New Term Loan.ESOL.
•Net periodic pension costincome will decreaseincrease by approximately $12$8 million during 20202021 which will primarily be reflected in the caption Defined benefit pension (income) expense on the Condensed Consolidated Statement of Operations. The decreaseincrease is primarily the result of higher plan asset values at December 31, 2019.2020.
•The long-lived assets of the Altek Group within the Harsco Environmental Segment primarily consist of intangible assets which have a carrying value of approximately $39 million at September 30, 2021. The Company tested the recoverability of Altek’s long-lived asset group in the fourth quarter of 2020, and no impairment was recorded. The Company has not identified any triggering events for the Altek asset group in the third quarter of 2021. However, if actual results prove inconsistent with the Company’s assumptions and judgments of the projected cash flows, it could result in impairment of the Altek intangible assets in future periods.
•The Company is currently manufacturing seven multipurpose Stoneblower machines for the U.K.-based customer Network Rail under a long-term contract. Delivery of these machines have been delayed due to several factors, including customer expectations and requirements and COVID-19, and the Company's estimated delivery schedule would trigger liquidated damages. While the customer has deducted certain liquidated damages from payments to the Company, the Company is in discussions with the customer and expects that it will ultimately get relief from the customer for most of these liquidated damages based on the nature of the delays. As such, the Company's current
estimate of contract revenues has not been reduced. However, if the Company is not granted relief, any adjustment to the estimate of these liquidated damages in the future could have a material impact on the Company’s results of operations in that period.
•As noted in Note 19, Subsequent Events, in Part I, Item 1, "Financial Statements," the Company announced, on November 2, 2021, it will explore strategic alternatives for the Rail business, with the intention to sell the business. As a result, the Rail segment will be classified as held for sale and reported as discontinued operations beginning in the fourth quarter of 2021.
Results of Operations
Segment Results
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In millions, except percentages) | (In millions, except percentages) | | 2020 | | 2019 | | 2020 | | 2019 | (In millions, except percentages) | | 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | | |
Harsco Environmental | Harsco Environmental | | $ | 222.5 | | | $ | 260.9 | | | $ | 668.1 | | | $ | 791.5 | | Harsco Environmental | | $ | 269.9 | | | $ | 222.5 | | | $ | 800.4 | | | $ | 668.1 | |
Harsco Clean Earth | Harsco Clean Earth | | 194.1 | | | 87.6 | | | 434.5 | | | 87.6 | | Harsco Clean Earth | | 200.5 | | | 194.1 | | | 585.9 | | | 434.5 | |
| Harsco Rail | Harsco Rail | | 92.8 | | | 74.6 | | | 253.0 | | | 224.8 | | Harsco Rail | | 73.9 | | | 92.8 | | | 256.7 | | | 253.0 | |
| Total Revenues | Total Revenues | | $ | 509.4 | | | $ | 423.2 | | | $ | 1,355.5 | | | $ | 1,104.0 | | Total Revenues | | $ | 544.3 | | | $ | 509.4 | | | $ | 1,643.0 | | | $ | 1,355.5 | |
Operating Income (Loss): | Operating Income (Loss): | | | | | | | | | Operating Income (Loss): | | | | | | | | |
Harsco Environmental | Harsco Environmental | | $ | 12.3 | | | $ | 32.8 | | | $ | 36.4 | | | $ | 84.9 | | Harsco Environmental | | $ | 27.6 | | | $ | 12.3 | | | $ | 83.8 | | | $ | 36.4 | |
Harsco Clean Earth | Harsco Clean Earth | | 8.9 | | | 11.3 | | | 12.9 | | | 11.3 | | Harsco Clean Earth | | 9.9 | | | 8.9 | | | 20.5 | | | 12.9 | |
| Harsco Rail | Harsco Rail | | 4.1 | | | 12.1 | | | 19.2 | | | 26.9 | | Harsco Rail | | 2.0 | | | 4.1 | | | 15.5 | | | 19.2 | |
Corporate | Corporate | | (20.2) | | | (9.5) | | | (58.7) | | | (38.8) | | Corporate | | (9.6) | | | (20.2) | | | (28.8) | | | (58.7) | |
Total Operating Income | Total Operating Income | | $ | 5.1 | | | $ | 46.7 | | | $ | 9.8 | | | $ | 84.4 | | Total Operating Income | | $ | 29.9 | | | $ | 5.1 | | | $ | 91.0 | | | $ | 9.8 | |
Operating Margins: | Operating Margins: | | | | | | | | | Operating Margins: | | | | | | | | |
Harsco Environmental | Harsco Environmental | | 5.5 | % | | 12.6 | % | | 5.4 | % | | 10.7 | % | Harsco Environmental | | 10.2 | % | | 5.5 | % | | 10.5 | % | | 5.4 | % |
Harsco Clean Earth | Harsco Clean Earth | | 4.6 | | | 12.9 | % | | 3.0 | | | 12.9 | % | Harsco Clean Earth | | 4.9 | % | | 4.6 | % | | 3.5 | % | | 3.0 | % |
| Harsco Rail | Harsco Rail | | 4.4 | | | 16.2 | % | | 7.6 | | | 12.0 | % | Harsco Rail | | 2.6 | % | | 4.4 | % | | 6.1 | % | | 7.6 | % |
Consolidated Operating Margin | Consolidated Operating Margin | | 1.0 | % | | 11.0 | % | | 0.7 | % | | 7.6 | % | Consolidated Operating Margin | | 5.5 | % | | 1.0 | % | | 5.5 | % | | 0.7 | % |
Harsco Environmental Segment:
| | | September 30, 2020 | | September 30, 2021 |
Significant Effects on Revenues (In millions) | Significant Effects on Revenues (In millions) | | Three Months Ended | | Nine Months Ended | Significant Effects on Revenues (In millions) | | Three Months Ended | | Nine Months Ended |
Revenues — 2019 | | $ | 260.9 | | | $ | 791.5 | | |
Revenues — 2020 | | Revenues — 2020 | | $ | 222.5 | | | $ | 668.1 | |
Net effects of price/volume changes, primarily attributable to volume changes | Net effects of price/volume changes, primarily attributable to volume changes | | (28.1) | | | (71.5) | | Net effects of price/volume changes, primarily attributable to volume changes | | 47.1 | | | 109.0 | |
Impact of foreign currency translation | Impact of foreign currency translation | | (0.3) | | | (23.8) | | Impact of foreign currency translation | | 3.5 | | | 24.5 | |
Net impact of new and lost contracts | Net impact of new and lost contracts | | (7.5) | | | (23.2) | | Net impact of new and lost contracts | | (3.5) | | | (2.6) | |
| Other | Other | | (2.5) | | | (4.9) | | Other | | 0.3 | | | 1.4 | |
Revenues — 2020 | | $ | 222.5 | | | $ | 668.1 | | |
Revenues — 2021 | | Revenues — 2021 | | $ | 269.9 | | | $ | 800.4 | |
Factors Positively Affecting Operating Income:
•Lower selling, general and administrative expenses, exclusive of provisions for doubtful accounts,Operating income was positively affected by improved operating income by $7.5 million during the nine months ended September 30, 2020 compared to the same period in the prior year.
•The Company recorded a provision for doubtful accounts of $6.2 million related to a U.K. customer that entered administration during the nine months ended September 30, 2019 that did not repeat in 2020.
Factors Negatively Impacting Operating Income:
•Overalloverall steel production by customers under environmental services contracts including the impact of new and exited contracts, decreased 12% and 13% for the third quarter and nine months ended September 30, 2020, respectively,2021.
•Operating income was positively affected by higher contributions from applied products during the third quarter and nine months ended September 30, 2021 compared with the same periods in the prior year. The decreased production was attributable to the global economic impact of COVID-19.
•Operating results for the third quarter and nine months ended September 30, 2020 were impacted by decreased demand for applied products and by-products. The decreased demand was attributable to the global economic impactHigher asset sale gains of COVID-19.
•Operating results for$7.5 million in the nine months ended September 30, 2020 were also negatively impacted by $5.2 million of employee termination benefit costs incurred to improve operational efficiency and support near-term financial performance.
•Foreign currency translation decreased operating income $3.2 million during the nine months ended September 30, 20202021 compared with the same period in the prior year, but did not have a significant impact for the third quarter of 2020.
•Incremental costs directly related to COVID-19 of $0.4 million and $1.2 million for the third quarter and nine months ended September 30, 2020, respectively, decreased operating income compared with the same periods in prior year.
•Operating income for the nine months ended September 30, 2020 was negatively impacted in comparison to the prior year by a $2.3 million gain during the first quarter of 2019 related to the recognition of a foreign currency cumulative translation adjustment resulting from the substantial liquidation of a subsidiary that did not repeat in 2020.
•Operating results for the nine months ended September 30, 2020 were negatively impacted by a $4.4$5.2 million net positive contingent consideration adjustment related to the Altek acquisition which occurred in 2019 andof employee termination benefit costs.
•Foreign currency translation did not repeatsignificantly impact operating income in 2020.the third quarter and nine months ended September 30, 2021.
Factors Negatively Impacting Operating Income:
•Impact of cost increases relating to raw materials, labor, equipment rental and maintenance.
•Impact of new and exited contracts of $1.8 million occurring during the nine months ended September 30, 2021.
Harsco Clean Earth Segment:
The Company acquired ESOL on April 6, 2020 and Clean Earth on June 28, 2019 and the operating results of both are reflected in the Harsco Clean Earth Segment. Revenues and
| | | | | | | | | | | | | | |
| | September 30, 2021 |
Significant Effects on Revenues (In millions) | | Three Months Ended | | Nine Months Ended |
Revenues—2020 | | $ | 194.1 | | | $ | 434.5 | |
Impact of ESOL acquisition (a) | | — | | | 134.2 | |
Net effects of price/volume changes, primarily attributable to volume changes | | 6.4 | | | 15.8 | |
Other | | — | | | 1.4 | |
Revenues—2021 | | $ | 200.5 | | | $ | 585.9 | |
(a) Reflects net revenue of ESOL for the three months ended March 31, 2021.
The following factors contributed to the changes in operating income forin third quarter of 2020 were $194.1 million and $8.9 million, respectively. Revenues and operating income for nine months ended September 30, 2020 were $434.52021.
Factors Positively Affecting Operating Income:
•Favorable volume and mix for the hazardous waste business for the third quarter and nine months ended September 30, 2021.
•The ESOL acquisition contributed $7.0 million to operating income during the first quarter of 2021.
•Insurance recoveries of $2.6 million for the third quarter and nine months ended September 30, 2021.
Factors Negatively Impacting Operating Income:
•Increases in selling, general and administrative expenses of $2.8 million and $12.9$9.7 million respectively. for the third quarter and nine months ended September 30, 2021, respectively, primarily to support the expanded business as well as incentive compensation.
•Impact of increases in costs related to labor, transportation and materials.
•Decrease in contaminated material (soil) and dredging volume due principally to the impacts of COVID-19 during the nine months ended September 30, 2021.
Operating resultsIncome includes intangible asset amortization expense for the third quarter and nine months ended September 30, 2021 of $6.0 million and $18.2 million, respectively, and for the third quarter and nine months ended September 30, 2020 includedof $6.2 million and $16.5 million, of intangible asset amortization expense, respectively.
Harsco Rail Segment:
| | | September 30, 2020 | | September 30, 2021 |
Significant Effects on Revenues (In millions) | Significant Effects on Revenues (In millions) | | Three Months Ended | | Nine Months Ended | Significant Effects on Revenues (In millions) | | Three Months Ended | | Nine Months Ended |
Revenues — 2019 | | $ | 74.6 | | | $ | 224.8 | | |
Revenues — 2020 | | Revenues — 2020 | | $ | 92.8 | | | $ | 253.0 | |
Impact of foreign currency translation | | Impact of foreign currency translation | | 0.4 | | | 4.9 | |
Net effect of price/volume changes, primarily attributable to volume changes | Net effect of price/volume changes, primarily attributable to volume changes | | 17.4 | | | 28.8 | | Net effect of price/volume changes, primarily attributable to volume changes | | (19.3) | | | (1.3) | |
Impact of foreign currency translation | | 0.8 | | | (0.6) | | |
| Revenues — 2020 | | $ | 92.8 | | | $ | 253.0 | | |
Other | | Other | | — | | | 0.1 |
Revenues — 2021 | | Revenues — 2021 | | $ | 73.9 | | | $ | 256.7 | |
Factors Positively Affecting Operating Income:
•Increased railway contracting services, primarily related to the startFavorable mix of a new contract in the U.S.,equipment sales increased operating income during the nine months ended September 30, 20202021.
•Increase in after-market parts sales during the third quarter ended September 30, 2021 compared with the same period in the prior year.
•Results for the third quarter and nine months ended September 30, 2019 included $0.8 million and $4.6 million, respectively, of costs associated with the consolidation of U.S. manufacturing and distribution into one facility that did not repeat during the third quarter and nine months ended of September 30, 2020.
•Lower selling, general and administrative expenses improved operating income by $1.3 million and $4.1 million during the third quarter and nine months ended September 30, 2020, respectively, compared to the same periods in the prior year.
Factors Negatively Impacting Operating Income:
•The unfavorable mix of maintenance-of-way equipment sales, as well as the timing and mix ofin after-market parts sales during the nine months ended September 30, 2021 compared with the same period in the prior year.
•Unfavorable volume of equipment sales decreased operating income during the third quarter andended September 30, 2021.
•Impact of increases in costs including an unfavorable LIFO adjustment of $1.6 million in the nine months ended September 30, 20202021 compared with the same periods in the prior year as a result of lower end market demand.
•Incremental costs directly related to COVID-19 of $0.3 million and $0.6 million for the third quarter and nine months ended September 30, 2020 decreased operating income compared with the same periodsperiod in the prior year.
Corporate Costs:
In addition to the factors highlighted above that positively affected or negatively impacted segment operating income, the Company's Corporate function was positively impacted by incremental acquisition related and integration costs of approximately $8.0$11 million and $23.8$42 million during the third quarter and nine months ended September 30, 2020, primarily related to the acquisition of ESOL, as well as an increaserespectively, not repeated in the contingent consideration for the Clean Earth acquisition related to an increase in expected values of assumed net operating losses (offset by an income tax benefit). These increased costs werecurrent year. This was partially offset by decreases in other selling, generalincreased insurance and administrative costs, including lower compensation expense and cost reduction actions due to COVID-19.costs.
Consolidated Results
| | | September 30 | | September 30 |
| | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
(In millions, except per share amounts) | (In millions, except per share amounts) | | 2020 | | 2019 | | 2020 | | 2019 | (In millions, except per share amounts) | | 2021 | | 2020 | | 2021 | | 2020 |
Total revenues | Total revenues | | $ | 509.4 | | | $ | 423.2 | | | $ | 1,355.5 | | | $ | 1,104.0 | | Total revenues | | $ | 544.3 | | | $ | 509.4 | | | $ | 1,643.0 | | | $ | 1,355.5 | |
Cost of services and products sold | Cost of services and products sold | | 412.2 | | | 311.5 | | | 1,092.8 | | | 828.9 | | Cost of services and products sold | | 434.4 | | | 412.2 | | | 1,309.8 | | | 1,092.8 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | | 88.0 | | | 63.2 | | | 241.2 | | | 187.1 | | Selling, general and administrative expenses | | 82.1 | | | 88.0 | | | 247.8 | | | 241.2 | |
Research and development expenses | Research and development expenses | | 0.6 | | | 1.3 | | | 2.6 | | | 3.2 | | Research and development expenses | | 0.8 | | | 0.6 | | | 2.2 | | | 2.6 | |
| Other expenses, net | | 3.6 | | | 0.4 | | | 9.1 | | | 0.4 | | |
Other (income) expenses, net | | Other (income) expenses, net | | (2.8) | | | 3.6 | | | (7.8) | | | 9.1 | |
Operating income from continuing operations | Operating income from continuing operations | | 5.1 | | | 46.7 | | | 9.8 | | | 84.4 | | Operating income from continuing operations | | 29.9 | | | 5.1 | | | 91.0 | | | 9.8 | |
Interest income | Interest income | | 0.6 | | | 0.4 | | | 1.6 | | | 1.6 | | Interest income | | 0.6 | | | 0.6 | | | 1.8 | | | 1.6 | |
Interest expense | Interest expense | | (15.8) | | | (12.8) | | | (43.4) | | | (24.4) | | Interest expense | | (16.0) | | | (15.8) | | | (48.9) | | | (43.4) | |
Unused debt commitment and amendment fees | | — | | | (0.2) | | | (1.9) | | | (7.6) | | |
Unused debt commitment fees, amendment fees and loss on extinguishment of debt | | Unused debt commitment fees, amendment fees and loss on extinguishment of debt | | (0.2) | | | — | | | (5.5) | | | (1.9) | |
| Defined benefit pension income (expense) | | 1.9 | | | (1.4) | | | 5.2 | | | (4.2) | | |
Income tax benefit (expense) | | 1.7 | | | (12.6) | | | 4.6 | | | (17.8) | | |
Equity income of unconsolidated entities, net | | — | | | 0.1 | | | 0.2 | | | 0.2 | | |
Defined benefit pension income | | Defined benefit pension income | | 3.9 | | | 1.9 | | | 11.8 | | | 5.2 | |
Income tax benefit (expense) from continuing operations | | Income tax benefit (expense) from continuing operations | | (7.0) | | | 1.7 | | | (19.8) | | | 4.6 | |
Equity income (loss) of unconsolidated entities, net | | Equity income (loss) of unconsolidated entities, net | | (0.3) | | | — | | | (0.5) | | | 0.2 | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | (6.6) | | | 20.3 | | | (23.9) | | | 32.1 | | Income (loss) from continuing operations | | 11.0 | | | (6.6) | | | 30.0 | | | (23.9) | |
Gain on sale of discontinued business | Gain on sale of discontinued business | | — | | | 528.0 | | | 18.4 | | | 528.0 | | Gain on sale of discontinued business | | — | | | — | | | — | | | 18.4 | |
Income (loss) from discontinued businesses | | (1.5) | | | 0.3 | | | (1.2) | | | 24.0 | | |
Income tax expense related to discontinued operations | | (0.2) | | | (110.7) | | | (9.8) | | | (112.7) | | |
Income (loss) from discontinued operations | | (1.7) | | | 417.5 | | | 7.3 | | | 439.2 | | |
Loss from discontinued businesses | | Loss from discontinued businesses | | (1.5) | | | (1.5) | | | (4.8) | | | (1.2) | |
Income tax expense (benefit) related to discontinued operations | | Income tax expense (benefit) related to discontinued operations | | 0.4 | | | (0.2) | | | 1.2 | | | (9.8) | |
Income (loss) from discontinued operations, net of tax | | Income (loss) from discontinued operations, net of tax | | (1.1) | | | (1.7) | | | (3.5) | | | 7.3 | |
Net income (loss) | Net income (loss) | | (8.3) | | | 437.9 | | | (16.6) | | | 471.3 | | Net income (loss) | | 9.8 | | | (8.3) | | | 26.5 | | | (16.6) | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | | 8.1 | | | (9.2) | | | (8.9) | | | (1.1) | | Total other comprehensive income (loss) | | (9.0) | | | 8.1 | | | 10.1 | | | (8.9) | |
Total comprehensive income (loss) | Total comprehensive income (loss) | | (0.2) | | | 428.6 | | | (25.4) | | | 470.2 | | Total comprehensive income (loss) | | 0.8 | | | (0.2) | | | 36.6 | | | (25.4) | |
Diluted earnings (loss) per common share from continuing operations attributable to Harsco Corporation common stockholders | Diluted earnings (loss) per common share from continuing operations attributable to Harsco Corporation common stockholders | | (0.10) | | | 0.22 | | | (0.35) | | | 0.31 | | Diluted earnings (loss) per common share from continuing operations attributable to Harsco Corporation common stockholders | | 0.11 | | | (0.10) | | | 0.31 | | | (0.35) | |
Effective income tax rate for continuing operations | Effective income tax rate for continuing operations | | 20.0 | % | | 38.4 | % | | 16.2 | % | | 35.8 | % | Effective income tax rate for continuing operations | | 38.3 | % | | 20.0 | % | | 39.3 | % | | 16.2 | % |
Comparative Analysis of Consolidated Results
Revenues
Revenues for the third quarter of 20202021 increased $86.2$34.9 million or 20.4%6.9% from the third quarter of 2019.2020. Revenues for the first nine months of 20202021 increased $251.6$287.5 million or 22.8%21.2% from the third quarterfirst nine months of 2019.2020. Foreign currency translation increased revenues by $0.5$3.9 million and decreased revenues by $24.4$29.4 million for the third quarter and nine months ended September 30, 2020,2021, respectively, compared with the same periodsperiod in the prior year. Refer to the discussion of segment results above for information pertaining to factors positively affecting and negatively impacting revenues.
Cost of Services and Products Sold
Cost of services and products sold for the third quarter of 20202021 increased $100.7$22.2 million or 32.3%5.4% from the third quarter of 2019.2020. Cost of services and products sold for the first nine months of 20202021 increased $263.9$217.0 million or 31.8%19.9% from the first nine months of 2019.2020. The changes in cost of services and products sold were attributable to the following significant items:
| | | September 30, 2020 | | September 30, 2021 |
(In millions) | (In millions) | | Three Months Ended | | Nine Months Ended | (In millions) | | Three Months Ended | | Nine Months Ended |
Impact of ESOL and Clean Earth acquisitions | | $ | 103.0 | | | $ | 302.4 | | |
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) | | (8.9) | | | (23.6) | | |
Change in costs due to changes in revenues (exclusive of the ESOL acquisition and effects of foreign currency translation and including fluctuations in commodity costs included in selling prices) | | Change in costs due to changes in revenues (exclusive of the ESOL acquisition and effects of foreign currency translation and including fluctuations in commodity costs included in selling prices) | | $ | 18.6 | | | $ | 84.2 | |
Impact of ESOL acquisition | | Impact of ESOL acquisition | | — | | | 104.0 | |
Impact of foreign currency translation | Impact of foreign currency translation | | 0.8 | | | (18.5) | | Impact of foreign currency translation | | 3.4 | | | 26.9 | |
Other | Other | | 5.8 | | | 3.6 | | Other | | 0.2 | | | 1.9 | |
| Total change in cost of services and products sold — 2020 vs. 2019 | | $ | 100.7 | | | $ | 263.9 | | |
Total change in cost of services and products sold — 2021 vs. 2020 | | Total change in cost of services and products sold — 2021 vs. 2020 | | $ | 22.2 | | | $ | 217.0 | |
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the third quarter of 2020 increased $24.82021 decreased $5.9 million or 39.2%6.7% from the third quarter of 2019.2020. Selling, general and administrative expenses for the first nine months of 20202021 increased $54.1$6.6 million or 28.9%2.7% from the first nine months of 2019. This increase primarily relates2020. The decrease for the third quarter of 2021 is due principally to incremental acquisition related and integration costs duringincurred in the nine months ended September 30,third quarter of 2020 primarily related to the acquisition of ESOL, andpartially offset by higher compensation costs. This increase in the first nine months of 2021 primarily relates to the inclusion of selling, general and administrative expenses associated with the ESOL business and Clean Earth acquisitions, which occurred in April 2020 and June 2019, respectively. These increases werehigher compensation costs partially offset by decreased compensation expense resulting from lower incentive accruals, a provision for doubtful accountsacquisition related and integration costs incurred during the first nine months of $6.1 million2020 related to a U.K. customer that entered administration during the nine months ended September 30, 2019 that did not repeat in 2020 and decreased travel and entertainment expenses.acquisition of ESOL.
Other (Income) Expenses, Net
The major components of this Condensed Consolidated Statements of Operations caption are as follows:
| | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
| | September 30 | | September 30 | | September 30 | | September 30 |
(In thousands) | (In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
| Employee termination benefit costs | Employee termination benefit costs | | $ | 798 | | | $ | 1,591 | | | $ | 6,694 | | | $ | 5,107 | | Employee termination benefit costs | | $ | (65) | | | $ | 798 | | | $ | 1,285 | | | $ | 6,694 | |
| Other costs to exit activities | Other costs to exit activities | | 13 | | | 918 | | | 478 | | | 3,265 | | Other costs to exit activities | | (27) | | | 13 | | | 611 | | | 478 | |
Impaired asset write-downs | Impaired asset write-downs | | 2 | | | 129 | | | 75 | | | 343 | | Impaired asset write-downs | | 41 | | | 2 | | | 203 | | | 75 | |
Contingent consideration adjustments | Contingent consideration adjustments | | 2,437 | | | (906) | | | 2,437 | | | (4,417) | | Contingent consideration adjustments | | — | | | 2,437 | | | — | | | 2,437 | |
| Net gains | Net gains | | (7) | | | (1,353) | | | (255) | | | (3,624) | | Net gains | | (1,575) | | | (7) | | | (8,622) | | | (255) | |
Other | Other | | 390 | | | 4 | | | (355) | | | (265) | | Other | | (1,209) | | | 390 | | | (1,287) | | | (355) | |
Other expenses, net | | $ | 3,633 | | | $ | 383 | | | $ | 9,074 | | | $ | 409 | | |
Other (income) expenses, net | | Other (income) expenses, net | | $ | (2,835) | | | $ | 3,633 | | | $ | (7,810) | | | $ | 9,074 | |
Interest Expense
Interest expense during the third quarter and first nine months of 20202021 increased by $3.0$0.2 million and $19.0$5.5 million, respectively, compared with the third quarter and first nine months 2019.of 2020. This increase in the first nine months of 2021 primarily relates to higher outstanding borrowings and weighted average interest rates related to the June 2019 issuanceas a result of the Notes and the April 2020 issuance of the New Term Loan.ESOL acquisition.
Unused Debt Commitment andFees, Amendment Fees and Loss on Extinguishment of Debt
During the third quarter and first nine months ended September 30,of 2021 the Company recognized $0.2 million and $5.5 million, respectively, of fees and other costs primarily related to the amended Senior Secured Credit Facilities.
During the first nine months of 2020 the Company recognized $1.9 million of fees and expenses related to the amendedan amendment of Senior Secured Credit Facilities in the caption Unused debt commitment and amendment fees on the Condensed Consolidated Statement of Operations.
During the first nine months of 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 Notes were not issued prior to the acquisition of Clean Earth. Additionally, the Company recognized $0.8 million of expenses related to the amendment of the Term Loan Facility.Facilities.
Defined Benefit Pension Income (Expense)
Defined benefit pension income for the third quarter of 20202021 was $1.9$3.9 million, compared with defined benefit pension expenseincome of $1.4$1.9 million for the third quarter of 2019.2020. Defined benefit pension income for the first nine months of 20202021 was $5.2$11.8 million, compared with defined benefit pension expenseincome of $4.2$5.2 million for the first nine months of 2019. These changes are2020. This change is primarily the result of higher plan asset values at December 31, 2019.2020.
Income Tax Expense (Benefit)
Income tax expense from continuing operations for the third quarter and first nine months of 2021 was $7.0 million and $19.8 million, respectively, compared with an income tax benefit related tofrom continuing operations for the third quarter and first nine months of 2020 wasof $1.7 million and $4.6 million, respectively, compared with income tax expense related to continuing operations for the third quarter and first nine months of 2019 was $12.6 million and $17.8 million, respectively. This change primarily resulted from decreased operatinghigher pre-tax income primarily due to impacts of COVID-19 and incrementalan improvement in operations, acquisition related and integration costsexpenses in connection with the Company's acquisitions of approximately $8.1 million2020 not recurring in 2021, and $23.9 million for the third quarter and first nine months ended September 30, 2020, respectively, as well as a $2.8 million favorable income tax adjustment in connection with an increase in estimated usage of assumed net operating losses related to the Clean Earth acquisition and a $2.8 million valuation allowance adjustment against a deferred tax asset due to a lower projected income in a certain jurisdiction in 20192020 not recurring in 2020.2021.
Income (Loss) from Continuing Operations
TheIncome from continuing operations was $11.0 million and $30.0 million for the third quarter and first nine months of 2021, respectfully, compared with Loss from continuing operations wasof $6.6 million and $23.9 million for the third quarter and first nine months of 2020, respectively, compared with Income from continuing operations of $20.3 million and $32.1 million for the third quarter and the first nine months of 2019, respectively,respectfully. The primary drivers for these decreasesincreases are noted above.
Gain on Sale of Discontinued Business
In January 2020, the Company sold IKG and recognized a gain on sale of $18.4 million pre-tax (or approximately $9 million after-tax).
In July 2019, the Company completed the previously announced sale of AXC for $600 million in cash. This transaction resulted in a gain on sale of $528.0 million pre-tax (approximately $418 million after tax) which has been recorded in the Company's Condensed Consolidated Statements of Operations as discontinued operations for the three and nine months ended September 30, 2019.
Income (Loss)Loss from Discontinued Operations
The operating results of the former Harsco Industrial Segment and costs directly attributable to these operations, an allocation of interest expense associated with mandatory debt repayments required as a result of the disposals and the write-off of deferred financing costs resulting from the mandatory repayment have been reflected as discontinued operations in the Company's Condensed Consolidated Statement of Operations for all periods presented. In addition, this caption includes costs directly attributable to retained contingent liabilities of the Harsco Industrial Segment. See Note 3, Acquisitions and Dispositions, in Part I, Item 1, Financial Statements.
Total Other Comprehensive Income (Loss)
Total other comprehensive loss was $9.0 million and Total other comprehensive income was $10.1 million in the third quarter and first nine months of 2021, respectively, compared with Total other comprehensive income of $8.1 million and Total other comprehensive loss wasof $8.9 million in the third quarter and first nine months of 2020, respectively, compared with Total other comprehensive loss of $9.2 million and $1.1 million in the third quarter and the first nine months of 2019, respectively. The primary driver of these changes is the decrease for the comparative nine month period is due to the strengtheningfluctuation of the U.S. dollar against certain currencies inclusive of the impact of foreign currency translation of cumulative unrecognized actuarial losses on the Company’s pension obligations. The increase for the third quarter of 2020 is due primarily to these currencies partially recovering their value during the third quarter.
Liquidity and Capital Resources
In March 2020 the Company raised the $280 million New Term Loan as a new tranche under the existing Senior Secured Credit Facilities. The New Term Loan was fully drawn on April 6, 2020 to partially fund the acquisition of ESOL. See Note 3, Acquisition and Dispositions, for additional information related to the ESOL acquisition. Borrowings under the New Term Loan bear interest at a rate per annum ranging from 150 to 225 basis points over adjusted LIBOR (as defined in the Credit Agreement). The New Term Loan will mature on June 28, 2024.
In both March 2020 and June 2020, the Company amended the Senior Secured Credit Facilities to increase the net debt to consolidated adjusted EBITDA ratio covenant. As a result of these amendments, the net debt to consolidated adjusted EBITDA ratio covenant has been increased to 5.75 through March 2021 and then decreasing quarterly until reaching 4.75 in December 2021. There is no change to the previously agreed interest rates as long as the Company's total leverage ratio does not equal or exceed 4.50, at which time it would increase by 25 basis points.
Cash Flow Summary
The global economy continues to be impacted by COVID-19, the ultimate extent and duration of which is not presently known, and the Company expects its liquidity to continue to be negatively impacted in the near term. As a result, the Company has taken significant proactive actions to minimize the operational and financial impacts. In addition, the Company is focused on actions to include adjusting its cost structure, reducing discretionary capital and operating expenditures and improving working capital management in order to preserve its financial flexibility and liquidity position.
The Company currently expects to have sufficient financial liquidity and borrowing capacity to support the strategies within each of its businesses, inclusive of the impacts of COVID-19.businesses. The Company currently expects operational and business needs to be met by cash provided by operations which may be supplemented with borrowings from time to time, principally under the Senior Secured Credit Facility,Facilities. The Company supplements the cash provided by operations with borrowings from time to time due to historichistorical patterns of seasonal cash flow, the funding of various projects and the impact of COVID-19.COVID-19 and related economic conditions. 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 Company's Condensed Consolidated Statements of Cash Flows, are summarized in the following table:
| | | | Nine Months Ended | | | Nine Months Ended |
| | September 30 | | September 30 |
(In millions) | (In millions) | | 2020 | | 2019 | (In millions) | | 2021 | | 2020 |
Net cash provided (used) by: | Net cash provided (used) by: | | | | | Net cash provided (used) by: | | | | |
Operating activities | Operating activities | | $ | 42.3 | | | $ | 50.0 | | Operating activities | | $ | 46.8 | | | $ | 42.3 | |
Investing activities | Investing activities | | (470.1) | | | (165.9) | | Investing activities | | (88.8) | | | (470.1) | |
Financing activities | Financing activities | | 460.8 | | | 128.9 | | Financing activities | | 44.2 | | | 460.8 | |
Effect of exchange rate changes on cash and cash equivalents, including restricted cash | Effect of exchange rate changes on cash and cash equivalents, including restricted cash | | (6.6) | | | (2.2) | | Effect of exchange rate changes on cash and cash equivalents, including restricted cash | | (1.8) | | | (6.6) | |
Net change in cash and cash equivalents, including restricted cash | Net change in cash and cash equivalents, including restricted cash | | $ | 26.4 | | | $ | 10.8 | | Net change in cash and cash equivalents, including restricted cash | | $ | 0.4 | | | $ | 26.4 | |
Net cash provided by operating activities — Net cash provided by operating activities in the first nine months of 20202021 was $42.3$46.8 million, a decreasean increase of $7.8$4.5 million from the first nine months of 2019.2020. The primary driver for this increase was higher cash net income partially offset by an unfavorable change in working capital. The primary drivers for this decrease were lower net income (excluding the impacts of the IKG sale), including the incremental acquisition and integration costs principally related to the ESOL acquisition; partially offset by favorable changesunfavorable change in net working capital primarily due to additionalincluded lower customer advances and an increase in contract assets in the Harsco Rail Segment; improved collection of accounts receivable and timing of inventories. The decrease also includes the impact of taxes paidSegment related to the sale
continued build of long-term contracts and the timing of income taxes receivable.sales and collections of accounts receivable in the Harsco Environmental and Harsco Clean Earth segments.
Net cash used by investing activities — Net cash used by investing activities in the first nine months of 20202021 was $470.1$88.8 million, an increasea decrease of $304.2$381.3 million from the cash used in the first nine months of 2019.2020. The increasedecrease reflected reducedthe purchase of the ESOL business in 2020, partially offset by proceeds from the sale of businesses (AXCthe IKG business in 2020 and PK in 2019 compared with IKG in 2020), partially offset by decreased cash paid for businesses acquired (Clean Earth in 2019 compared with ESOL in 2020) and reducedincreased net capital expenditures primarily in the Harsco Environmental Segment.current year.
Net cash provided by financing activities — Net cash provided by financing activities in the first nine months of 20202021 was $460.8$44.2 million, an increasea decrease of $331.9$416.6 million from the first nine months of 2019.2020. The increasedecrease was primarily due to higherlower net cash borrowings of $470.6$410.8 million in the first nine months of 2020 compared with net cash borrowings of $176.0 million in the first nine months of 20192021 resulting primarily from the investing activities; decreasescash used to purchase the ESOL business in the payments of deferred financing costs and decreases in payments of employee taxes related to stock-based compensation vesting.2020.
Effect of exchange rate changes on cash and cash equivalents, including restricted cash — The decreasechange is due to the impact of the significant strengthening of the U.S. dollar against certain currencies that occurred during the first nine months of 2020 compared to less significant movement during the first nine months of 2021 on the global cash balances held by the Company in these currencies, including balances held in the Company’s multicurrency cash pool. The most significant impacts were the Mexican peso, the Brazilian real, the Canadian dollar and the Australian dollar.
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.
| | | | | | | | | | | | | | |
Summary of Senior Secured Credit Facilities(a): (In millions) | | September 30 2020 | | December 31 2019 |
By type: | | | | |
Revolving Credit Facility | | $ | 254.0 | | | $ | 67.0 | |
New Term Loan | | 280.0 | | | — | |
Original Term Loan | | 218.2 | | | 218.2 | |
5.75% Notes | | 500.0 | | | 500.0 | |
Total | | $ | 1,252.2 | | | $ | 785.2 | |
| | | | |
| | | | |
| | | | |
| | | | |
(a) All amounts outstanding under the Senior Secured Credit Facilities are classified as long-term on the Company's Condensed Consolidated Balance Sheets at both June 30, 2020 and December 31, 2019. | | | | | | | | | | | | | | |
Summary of Senior Secured Credit Facilities and Notes: (In millions) | | September 30 2021 | | December 31 2020 |
By type: | | | | |
New Term Loan | | $ | 498.8 | | | $ | — | |
Term Loan A | | — | | | 280.0 | |
Term Loan B | | — | | | 218.2 | |
Revolving Credit Facility | | 338.5 | | | 281.0 | |
5.75% Notes | | 500.0 | | | 500.0 | |
Total | | $ | 1,337.3 | | | $ | 1,279.2 | |
By classification: | | | | |
Current | | $ | 5.0 | | | $ | 10.5 | |
Long-term | | 1,332.3 | | | 1,268.7 | |
Total | | $ | 1,337.3 | | | $ | 1,279.2 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | September 30, 2020 | | | September 30, 2021 |
(In millions) | (In millions) | | Facility Limit | | Outstanding Balance | | Outstanding Letters of Credit | | Available Credit | (In millions) | | Facility Limit | | Outstanding Balance | | Outstanding Letters of Credit | | Available Credit |
| Multi-year revolving credit facility | | $ | 700.0 | | | $ | 254.0 | | | $ | 25.4 | | | $ | 420.6 | | |
Revolving credit facility (a U.S.-based program) | | Revolving credit facility (a U.S.-based program) | | $ | 700.0 | | | $ | 338.5 | | | $ | 29.8 | | | $ | 331.7 | |
Debt Covenants
The Senior Secured Credit Facility containsFacilities contain a consolidated net debt to consolidated adjusted EBITDA ratio covenant, which is not to exceed 5.75 through MarchDecember 31, 2021 and then decreasing quarterly until reaching 4.75 in December 2021,4.0 on March 31, 2023, and a minimum consolidated adjusted EBITDA to consolidated interest charges ratio covenant, which is not to be less than 3.0. At September 30, 20202021 the Company was in compliance with these covenants, as the total net debt to adjusted EBITDA ratio (as defined in the Credit Agreement) was 4.5 and total interest coverage ratio was 4.8.4.5. Based on balances and covenants in effect at September 30, 20202021 the Company could increase net debt by $329.5$367.8 million and remain in compliance with these debt covenants. Alternatively, adjusted EBITDA could decrease by $57.3$64.0 million, and the Company would remain in compliance with these covenants. 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.covenants based on its current outlook. However, due to the inherent uncertainty of COVID-19 on the Company’s businesses, the Company’s estimates of compliance with these covenants could change in the future.future with a deterioration in economic conditions including as a result of COVID-19.
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.
At September 30, 20202021 the Company's consolidated cash and cash equivalents included $81.7$71.7 million held by non-U.S. subsidiaries. At September 30, 20202021 approximately 1%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 $29.7$20.9 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.
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 I, Item 1, Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks have not changed significantly from those disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As
The Company maintains a system of September 30, 2020, an evaluation was performed, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities and Exchange Act of 1934, as amended. Based upon that evaluation, and subject to the exclusion below related to ESOL, such officers concluded that the Company's disclosure controls and procedures are effective to ensuregive reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Securities and Exchange Act of 1934, as amended (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (2) is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
In accordance with interpretive guidance issued by SEC staff, companies are allowedPrior to exclude acquired businesses fromour acquisition of ESOL on April 6, 2020, the assessmentprior owner of the business, Stericycle, Inc., had identified two material weaknesses in their internal control over financial reporting, during the first year after completion of an acquisition and from the assessment of disclosure controls and proceduresrelated in part to the extent subsumed in such internal control over financial reporting (the “Internal Controls Guidance”). In accordance with the Internal Controls Guidance, as the Company acquired ESOL on April 6, 2020, management's evaluation and conclusion as to the effectiveness of the Company's disclosure controls and procedures as of September 30, 2020 excluded the portion of disclosure controls and procedures that are subsumed by internal control over financial reporting of ESOL. ESOL’s assets represented approximately 11% of the Company’s consolidated total assets, excluding the effects of purchase accounting, and its revenues represented approximately 25% of the Company's consolidated total revenues, as of and for the quarter ended September 30, 2020.
Changes in Internal Control Over Financial Reporting
On June 28, 2019, the Company acquired Clean Earth. The Company has completed the process of transitioning Clean Earth to the Company's internal control over financial reporting. The Company will include Clean Earth in the assessment of internal control over financial reporting as of December 31, 2020.
On April 6, 2020 the Company acquired ESOL from Stericycle, Inc. As a result, the Company is currently integrating ESOL's operations into its overall system of internal control over financial reporting. Under the guidelines established by the SEC, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the year of acquisition. Accordingly, the Company expects to exclude ESOL from the assessment of internal control over financial reporting as of December 31, 2020.
Prior to the acquisition of ESOL, Stericycle, Inc. had identified two material weaknesses related to ESOL's internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in annual or interim financial statements will not be prevented or detected on a timely basis. The first material weakness relates to not fully implementingan incomplete implementation and monitoring of its general information technology controls in the areas of user access and program change management for systems supporting Stericycle Inc.'s internal control process, including ESOL. The second material weakness relates to not fully designing, implementing and monitoring certain controls relevant to the revenue and cost of disposal processes, including certain general information technology controls. While the Company has undertaken additional compensating processes and controls, the Company isAs of September 30, 2021, we are not yet in a position to conclude that the material weaknesses have been remediated asremediated.
As of September 30, 2020. As2021, an evaluation was performed, under the supervision and with the participation of the Company’s management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a – 15(b), as amended. Based upon that evaluation, such officers concluded that the Company's disclosure controls and procedures are considered ineffective until the material weaknesses in our internal control over financial reporting described above have been determined to have been remediated.
Notwithstanding the ineffective disclosure controls and procedures as a result there is a riskof the identified material weaknesses, management has concluded that athe condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material error may not be detected byrespects, the Company's internal control structure that could resultCompany’s financial position, results of operations and cash flows in a material misstatementaccordance with generally accepted accounting principles in the United States of America.
Remediation Plan
The Company has designed and implemented general information technology controls for ESOL’s systems and has implemented additional controls to ESOL's reported financial results, which are consolidated withenhance check-in procedures at the Company's results. The Company's managementwaste processing facilities and monitoring controls over the order and invoicing processes. Management is in the process of remediatingtesting the operating effectiveness of these material weaknesses.controls.
Management will conclude on the remediation when the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Other than the foregoing, there were no changes in the Company's internal control over financial reporting during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information on legal proceedings is included in Note 12, Commitments and Contingencies, in Part I, Item 1, Financial Statements.
ITEM 1A. RISK FACTORS
The Company's risk factors as of September 30, 20202021 have not changed materially from those described in Part 1, Item 1A, "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2019,2020, except for the risk factor below.
OutbreaksAlthough we announced our intention to conduct a process for the divestiture of diseaseour Rail division, we may be unable to complete a transaction on favorable terms or at all and health epidemics, such as COVID-19,our pursuit of a divestiture could have a negative impact on the Company's business revenues, financial position,adversely affect our businesses, results of operations and/or stock price.
In late December 2019 a notice of pneumonia of unknown cause originating from Wuhan, Hubei province of China was reported to the World Health Organization. A novel coronavirus called coronavirus disease 2019 was identified, with cases soon confirmed in multiple provinces in China, as well as in several other countries. On March 2, 2020, the World Health Organization declared the coronavirus outbreak a “pandemic”, which is disease that is widespread around the world with an impact on society. Since that time the virus has been identified in virtually every country, travel to and from most countries has been suspended or restricted by air carriers and foreign governments, and extended shutdowns of certain businesses and other activities in many countries have occurred and/or remain ongoing. This has led to disruptions in global supply chains, as well as steep downturns and price volatility in equity markets.financial condition.
COVID-19 continuesOn November 2, 2021, we announced that we intend to impact worldwide economic activityconduct a process beginning in the first half of 2022 for the divestiture of our Rail division. Our announcement, and poseour conducting, of a divestiture process for our Rail division involves various risks and uncertainties, including the risk that the Company or its employees, contractors, suppliers, customers and other business partnerswe may be prevented from conducting certain business activitiesunsuccessful in identifying an acquirer for the division, unable to enter into an indefinite period of time, includingagreement for a transaction and any agreement that we may enter into may not be on favorable terms and/or may not be completed due to 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 measuresregulatory or other measures elected by companies as preventative measures may lead tofactors. Moreover, the Company'sannouncement and conduct of the divestiture process could cause disruptions in, and create uncertainty surrounding, our Rail division, including affecting the Rail division’s relationships with its existing and future customers, being unable to complete purchases or other activities.
COVID-19 maysuppliers and employees, which could 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 futureRail division’s results of operations cash flows,and financial condition, potentially making it more difficult to successfully complete a transaction on favorable terms. If we are unable to complete a divestiture of our Rail division or we complete a transaction on unfavorable terms, we may suffer negative publicity, our Rail and other businesses may suffer, our results of operations, financial condition or stock price.cash flows may be adversely effected and the market value of our shares may fall. In addition, the divestiture process may require commitments of significant time and resources on the part of management. As a result, the divestiture process may divert management’s attention from overseeing, and exploring opportunities that may be beneficial to, our other businesses and operations and, as such, adversely affect our other businesses and operations and harm our results of operations, financial condition or cash flows and the market value of our shares.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 2, 2018 the Company announced that the Board of Directors 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. The Company did not purchase any shares of common stock under this program during the quarter ended September 30, 2020. The approximate dollar value of shares that may yet be purchased under the share repurchase program is $13,151,485. When and if appropriate, repurchases are made in open market transactions, depending on market conditions. Share repurchases may not occur and may be discontinued at any time.None.
ITEM 5.OTHER INFORMATION
On October 27, 2021, the Company entered into Amendment No. 8 to Third Amended and Restated Credit Agreement with certain financial institutions and Bank of America, N.A. to make certain amendments in connection with the discontinuation of LIBOR. The Amendment No. 8 to Third Amended and Restated Credit Agreement is filed as Exhibit 10.1 hereto and incorporated into this Item 5 by reference.
ITEM 6. EXHIBITS
The following exhibits are included as part of this report by reference:
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Exhibit Number | | Description |
10.1 | | |
31.1 | | |
31.2 | | |
32 | | |
101.Def | | Definition Linkbase Document |
101.Pre | | Presentation Linkbase Document |
101.Lab | | Labels Linkbase Document |
101.Cal | | Calculation Linkbase Document |
101.Sch | | Schema Document |
101.Ins | | Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | HARSCO CORPORATION |
| | | (Registrant) |
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DATE | November 3, 20202, 2021 | | /s/ PETER F. MINANANSHOOMAN AGA |
| | | Peter F. MinanAnshooman Aga |
| | | Senior Vice President and Chief Financial Officer |
| | | (On behalf of the registrant and as Principal Financial Officer) |
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DATE | November 3, 20202, 2021 | | /s/ SAMUEL C. FENICE |
| | | Samuel C. Fenice |
| | | Vice President and Corporate Controller |
| | | (Principal Accounting Officer) |