NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include all accounts of Harsco Corporation (the "Company"), all entities in which the Company has a controlling voting interest and variable interest entities required to be consolidated in accordance with generally accepted accounting principles in the U.S. ("U.S. GAAP"). Intercompany accounts and transactions have been eliminated among consolidated entities.
The Company's management has evaluated all activity of the Company and concluded that subsequent events are properly reflected in the Company's consolidated financial statements and notes as required by U.S. GAAP.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with current year classifications.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short-term investments that are highly liquid in nature and have an original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Inventories in the U.S. are principally accounted for using the last-in, first-out ("LIFO") method. The Company's remaining inventories are accounted for using the first-in, first-out ("FIFO") or average cost methods. See Note 4, Accounts Receivable and Inventories, for additional information.
Depreciation
Property, plant and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using, principally, the straight-line method. When property, plant and equipment is retired from service, the cost of the retirement is charged to the allowance for depreciation to the extent of the accumulated depreciation and the balance is charged to income. Long-lived assets to be disposed of by sale are not depreciated while they are classified as held-for-sale.
Leases
The Company leases certain property and equipment under noncancelable lease agreements. All lease agreements are evaluated and classified as either an operating or capital lease in accordance with U.S. GAAP. A lease is classified as a capital lease if any of the following criteria are met: transfer of ownership to the Company by the end of the lease term; the lease contains a bargain purchase option; the lease term is equal to or greater than
75%
of the asset's economic life; or the present value of future minimum lease payments is equal to or greater than
90%
of the asset's fair market value. Operating lease expense is recognized ratably over the lease term, including rent abatement periods and rent holidays. See Note 6, Property, Plant and Equipment, and Note 8, Debt and Credit Agreements, for additional information on capital leases and Note 9, Operating Leases, for additional information on operating leases.
Goodwill and Other Intangible Assets
In accordance with U.S. GAAP, goodwill is not amortized and is tested for impairment annually, or more frequently if indicators of impairment exist, or if a decision is made to dispose of a business. Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below for which discrete financial information is available. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include declining cash flows or operating losses at the reporting unit level, a significant adverse change in legal factors or business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, or a more likely than not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, among others.
The Company performs the annual goodwill impairment test as of
October 1
. The Company has
five
reporting units, only
three
of which have goodwill associated with them as of
December 31, 2016
. Almost all of the Company's goodwill is included in the Harsco Metals & Minerals Segment.
The evaluation of potential goodwill impairment involves comparing the current fair value of each reporting unit to the net book value, including goodwill. The Company uses a discounted cash flow model (“DCF model”) to estimate the current fair value of reporting units, as management believes forecasted operating cash flows are the best indicator of current fair value. A number of significant assumptions and estimates are involved in the preparation of DCF models including future revenues and operating margin growth, the weighted-average cost of capital (“WACC”), tax rates, capital spending, pension funding, the impact of business initiatives, and working capital projections. These assumptions and estimates may vary significantly among reporting units. DCF models are based on approved long-range plans for the early years and historical relationships and projections for later years. WACC rates are derived from internal and external factors including, but not limited to, the average market price of the Company's stock, shares outstanding, book value of the Company's debt, the long-term risk free interest rate, and both market and size-specific risk premiums. Due to the many variables noted above and the relative size of the Company's goodwill, differences in assumptions may have a material impact on the results of the Company's annual goodwill impairment testing. If the net book value of a reporting unit were to exceed the current fair value, the second step of the goodwill impairment test would currently be required to determine if an impairment existed and the amount of goodwill impairment to record, if any. The second step of the goodwill impairment test compares the net book value of a reporting unit's goodwill with the implied fair value of that goodwill. The implied fair value of goodwill represents the excess of fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of the reporting unit if it were to be acquired in a hypothetical business combination and the current fair value of the reporting unit represented the purchase price. As necessary, the Company may use valuation experts to assist with the second step of the goodwill impairment test.
See Note 7, Goodwill and Other Intangible Assets, for additional information.
Impairment of Long-Lived Assets (Other than Goodwill)
Long-lived assets are reviewed for impairment when events and circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are reviewed for impairment when events and circumstances indicate the book value of an asset may be impaired. The Company's policy is to determine if an impairment loss exists when it is determined that the carrying amount of the asset exceeds the sum of the expected undiscounted future cash flows resulting from use of the asset, and its eventual disposition. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds its fair value, normally as determined in either open market transactions or through the use of a DCF model. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. See Note 17, Other Expenses, for additional information.
Deferred Financing Costs
The Company has incurred debt issuance costs which are recognized as Long-term debt on the Consolidated Balance Sheets. Debt issuance costs are amortized and recognized as interest expense over the contractual term of the related indebtedness or shorter period if appropriate based upon contractual terms. Whenever indebtedness is modified from its original terms, an evaluation is made whether an accounting modification or extinguishment has occurred in order to determine the accounting treatment for debt issuance costs related to the debt modification.
On January 1, 2016, the Company adopted changes issued by the Financial Accounting Standards Board (the "FASB") which required that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability. See Note 2, Recently Adopted and Recently Issued Accounting Standards for additional information.
Revenue Recognition
Service revenues and product revenues are recognized when they are realized or realizable and when earned. Revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the Company's price to the buyer is fixed or determinable and collectability is reasonably assured. Service revenues include the service components of the Harsco Metals & Minerals and Harsco Rail Segments. Product revenues include the Harsco Industrial Segment and the product revenues of the Harsco Metals & Minerals and Harsco Rail Segments.
Harsco Metals & Minerals Segment
—This Segment provides services predominantly on a long-term, volume-of-production contract basis. Contracts may include both fixed monthly fees as well as variable fees based upon specific services provided to the customer. The fixed-fee portion is recognized periodically as earned (normally monthly) over the contractual period. The variable-fee portion is recognized as services are performed and differs from period to period based upon the actual provision of services. This Segment also sells industrial abrasives and roofing granule products. Product revenues are recognized generally when title and risk of loss transfer, and when all revenue recognition criteria have been met. Title and risk of loss for domestic shipments generally transfer to the customer at the point of shipment. For export sales, title and risk of loss transfer in accordance with the international commercial terms included in the specific customer contract.
Harsco Industrial Segment
—This Segment sells industrial grating products, high-security fencing, heat exchangers, and heat transfer products. Product revenues are generally recognized when title and risk of loss transfer, and when all of the revenue recognition criteria have been met. Title and risk of loss for domestic shipments generally transfer to the customer at the point of shipment. For export sales, title and risk of loss transfer in accordance with the international commercial terms included in the specific customer contract or purchase order.
Harsco Rail Segment
—This Segment sells railway track maintenance equipment, after-market parts and provides railway track maintenance services. Product revenue is recognized generally when title and risk of loss transfer, and when all of the revenue recognition criteria have been met. Title and risk of loss for domestic shipments generally transfer to the customer at the point of shipment. For export sales, title and risk of loss transfer in accordance with the international commercial terms included in the specific customer contract. Revenue may be recognized subsequent to the transfer of title and risk of loss for certain product sales, if the specific sales contract includes a customer acceptance clause that provides for different timing. In those situations, revenue is recognized after transfer of title and risk of loss and after customer acceptance.
Certain contracts within the Harsco Rail Segment, which meet specific criteria established in U.S. GAAP, are accounted for as long-term contracts. The Company recognizes revenues on two contracts from the federal railway system of Switzerland ("SBB") based on the percentage-of-completion (units-of-delivery) method of accounting, whereby revenues and estimated average costs of the units to be produced under the contracts are recognized as deliveries are made or accepted. Contract revenues and cost estimates are reviewed and revised, at a minimum quarterly, and adjustments are reflected in the accounting period as such amounts are determined. See Note 4, Accounts Receivable and Inventories, for additional information.
Accounting for contracts using the percentage-of-completion method requires judgment relative to assessing risks, estimating contract revenues and costs (including estimating any liquidating damages or penalties related to performance) and making assumptions for schedule and technical items. Due to the number of years it may take to complete these contracts and the scope and nature of the work required to be performed on those contracts, estimating total sales and costs at completion is inherently complicated and subject to many variables and, accordingly estimates are subject to change. When adjustments in estimated total contract sales or estimated total costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. When estimates of total costs to be incurred on a contract, using the percentage-of-completion method, exceed estimates of total sales to be earned, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.
Services are predominantly on a long-term, time-and-materials contract basis. Revenue is recognized when earned as services are performed within the long-term contracts.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records deferred tax assets to the extent that the Company believes that these assets will more likely than not be realized. In making such determinations, the Company considers all available positive and negative evidence, including future reversals of existing deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial results. In the event the Company was to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be made that would reduce the provision for income taxes.
The Company prepares and files tax returns based on interpretation of tax laws and regulations and records its provision for income taxes based on these interpretations. Uncertainties may exist in estimating the Company's tax provisions and in filing tax returns in the many jurisdictions in which the Company operates, and as a result these interpretations may give rise to an uncertain tax position. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on its technical merits. Each subsequent period the Company determines if existing or new uncertain tax positions meet a more likely than not recognition threshold and adjust accordingly.
The Company recognizes interest and penalties related to unrecognized tax benefits within Income tax expense in the accompanying Consolidated Statements of Operations. Accrued interest and penalties are included in Other liabilities on the Consolidated Balance Sheets.
In general, it is the practice and the intention of the Company to reinvest the undistributed earnings of its non-U.S. subsidiaries. Should the Company repatriate future earnings, such amounts would become subject to U.S. taxation upon remittance of dividends and under certain other circumstances, thereby giving recognition to current tax expense and to international tax credits.
The significant assumptions and estimates described in the preceding paragraphs are important contributors to the effective tax rate each year.
See Note 11, Income Taxes, for additional information.
Accrued Insurance and Loss Reserves
The Company retains a significant portion of the risk for U.S. workers' compensation, U.K. employers' liability, automobile, general and product liability losses. During
2016
,
2015
and
2014
, the Company recorded insurance expense from continuing operations related to these lines of coverage of
$15.0 million
,
$13.6 million
and
$19.1 million
, respectively. Reserves have been recorded that reflect the undiscounted estimated liabilities including claims incurred but not reported. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Changes in the estimates of the reserves are included in net income (loss) in the period determined. During
2016
,
2015
and
2014
, the Company recorded retrospective insurance reserve adjustments that decreased pre-tax insurance expense from continuing operations for self-insured programs by
$5.4 million
,
$8.5 million
and
$7.0 million
, respectively. At
December 31, 2016
and
2015
, the Company has recorded liabilities of
$37.1 million
and
$41.8 million
, respectively, related to both asserted as well as unasserted insurance claims. Included in the balances at
December 31, 2016
and
2015
were
$3.5 million
and
$3.4 million
, respectively, of recognized liabilities covered by insurance carriers. Amounts estimated to be paid within
one
year have been included in current caption, Insurance liabilities, with the remainder included in non-current caption, Insurance liabilities, on the Consolidated Balance Sheets.
Warranties
The Company has recorded product warranty reserves of
$6.3 million
,
$7.8 million
and
$8.9 million
at
December 31, 2016
,
2015
and
2014
, respectively. The Company provides for warranties of certain products as they are sold. The following table summarizes the warranty activity for
2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Warranty reserves, beginning of the year
|
|
$
|
7,844
|
|
|
$
|
8,886
|
|
|
$
|
9,548
|
|
Accruals for warranties issued during the year
|
|
6,439
|
|
|
3,656
|
|
|
3,208
|
|
Reductions related to pre-existing warranties
|
|
(5,611
|
)
|
|
(3,042
|
)
|
|
(2,680
|
)
|
Warranties paid
|
|
(2,372
|
)
|
|
(1,629
|
)
|
|
(1,186
|
)
|
Other (principally foreign currency translation)
|
|
(19
|
)
|
|
(27
|
)
|
|
(4
|
)
|
Warranty reserves, end of the year
|
|
$
|
6,281
|
|
|
$
|
7,844
|
|
|
$
|
8,886
|
|
Warranty expense and payments are incurred principally in the Harsco Industrial and Harsco Rail Segments. Warranty activity may vary from year to year depending upon the mix of revenues and contractual terms related to product warranties.
Foreign Currency Translation
The financial statements of the Company's subsidiaries outside the U.S., except for those subsidiaries located in highly inflationary economies and those entities for which the U.S. dollar is the currency of the primary economic environment in which the entity operates, are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates at the balance sheet date. Resulting translation adjustments are recorded in the cumulative translation adjustment account, a separate component of Accumulated other comprehensive loss on the Consolidated Balance Sheets. Income and expense items are translated at average monthly exchange rates. Gains and losses from foreign currency transactions are included in Operating income (loss) from continuing operations. For subsidiaries operating in highly inflationary economies, and those entities for which the U.S. dollar is the currency of the primary economic environment in which the entity operates, gains and losses on foreign currency transactions and balance sheet translation adjustments are included in Operating income (loss) from continuing operations.
Financial Instruments and Hedging
The Company has operations throughout the world that are exposed to fluctuations in related foreign currencies in the normal course of business. The Company seeks to reduce exposure to foreign currency fluctuations through the use of forward exchange contracts. The Company does not hold or issue financial instruments for trading purposes, and it is the Company's policy to prohibit the use of derivatives for speculative purposes. The Company has a Foreign Currency Risk Management Committee that meets periodically to monitor foreign currency risks.
The Company executes foreign currency exchange forward contracts to hedge transactions for firm purchase commitments, to hedge variable cash flows of forecasted transactions and for export sales denominated in foreign currencies. These contracts are generally for
90
days or less; however, where appropriate, longer-term contracts may be utilized. For those contracts that are designated as qualified cash flow hedges, gains or losses are recorded in Accumulated other comprehensive loss on the Consolidated Balance Sheets.
Amounts recorded in Accumulated other comprehensive loss on the Consolidated Balance Sheets are reclassified into operations in the same period or periods during which the hedged forecasted transaction affects income. The cash flows from these contracts are classified consistent with the cash flows from the transaction being hedged (e.g., the cash flows related to contracts to hedge the purchase of fixed assets are included in cash flows from investing activities, etc.). The Company also enters into certain forward exchange contracts that are not designated as hedges. Gains and losses on these contracts are recognized in operations based on changes in fair market value. For fair value hedges of a firm commitment, the gain or loss on the derivative and the offsetting gain or loss on the hedged firm commitment are recognized currently in operations.
See Note 15, Financial Instruments, for additional information.
Earnings Per Share
Basic earnings per share are calculated using the weighted-average shares of common stock outstanding, while diluted earnings per share reflect the dilutive effects of stock-based compensation. Dilutive securities are not included in the computation of loss per share when the Company reports a net loss from continuing operations as the impact would be anti-dilutive. All share and per share amounts are restated for any stock splits and stock dividends that occur prior to the issuance of the financial statements.
See Note 13, Capital Stock, for additional information.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
2. Recently Adopted and Recently Issued Accounting Standards
The following accounting standards have been adopted in
2016
:
On January 1, 2016, the Company adopted changes issued by the FASB related to reporting extraordinary and unusual items. The changes simplified income statement presentation by eliminating the concept of extraordinary items. The changes became effective for the Company on January 1, 2016. The adoption of these changes did not have an impact on the Company's consolidated financial statements.
On January 1, 2016, the Company adopted changes issued by the FASB related to consolidation. The changes updated consolidation analysis and affected reporting entities that are required to evaluate whether they should consolidate certain legal entities. The changes became effective for the Company on January 1, 2016. The adoption of these changes did not have an impact on the Company's consolidated financial statements.
On January 1, 2016, the Company adopted changes issued by the FASB related to simplifying the presentation of debt issuance costs. The changes required that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability. In August 2015, the FASB added guidance about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. The changes became effective for the Company on January 1, 2016. The adoption of these changes resulted in the reclassification of approximately
$10 million
in deferred financing costs from Other assets to Long-term debt on the Company's consolidated balance sheets for all periods presented. The Company recorded approximately
$9 million
of additional deferred financing costs, net, during 2016 associated with the Company's debt refinancing. See Note 8, Debt and Credit Agreements, for additional information.
On January 1, 2016, the Company adopted changes issued by the FASB related to the determination of whether a cloud computing arrangement includes a software license. If a cloud computing arrangement is determined to include a software license, then the customer accounts for the software license element consistent with the acquisition of other software licenses. If the arrangement is determined not to contain a software license, the customer should account for the arrangement as a service contract. The changes became effective for the Company on January 1, 2016. The adoption of these changes did not have a material impact on the Company's consolidated financial statements.
On January 1, 2016, the Company adopted changes issued by the FASB simplifying the accounting for measurement period adjustments for business combinations. The changes resulted in an acquirer no longer being required to retrospectively reflect adjustments to provisional amounts during the measurement period as if they were recognized as of the acquisition date. Instead the acquirer would record the effect of the change to the provisional amounts during the measurement period in which the adjustment is identified. The changes also required additional disclosure related to such measurement period adjustments. The changes became effective for the Company on January 1, 2016. The adoption of these changes did not have an impact on the Company's consolidated financial statements; however in the future will have an effect on how the Company reports adjustments to provisional amounts during the measurement period.
In August 2014, the FASB issued changes related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The change became effective for the Company for the annual period ending December 31, 2016. The adoption of this change did not have an impact on the Company's consolidated financial statements.
In August 2016, the FASB issued changes to address eight specific cash flow presentation issues with the objective of reducing diversity in practice. The issues identified include: debt prepayments or extinguishment costs; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. During the fourth quarter of 2016, Management early adopted these changes. As a result of the adoption, the only change to the Consolidated statement of cash flows is that all cash costs related to the early extinguishment of the 5.75% Senior Notes due 2018 (the “Notes”) are reflected as financing activities, whereas prior to the adoption, some companies classified such costs as operating activities. The adoption of these changes did not have any impact in the previously issued financial statements.
The following accounting standards have been issued and become effective for the Company at a future date:
In May 2014, the FASB issued changes related to the recognition of revenue from contracts with customers. The changes clarify the principles for recognizing revenue and develop a common revenue standard. The core principle of the changes is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The changes also require additional disclosures related to revenue recognition. In July 2015, the FASB deferred the effective date of these changes by one year, but will permit entities to adopt one year earlier. During 2016, the FASB clarified the implementation guidance for principal versus agent considerations, identifying performance obligations, accounting for intellectual property licenses, collectability, non-cash consideration, the presentation of sales and other similar taxes, introduced practical expedients related to disclosures of remaining performance obligations and other technical corrections and improvements. These changes become effective for the Company on January 1, 2018. Management has not yet finalized its evaluation, but currently believes the most significant impact will be with regard to the timing of revenue recognition associated with the air-cooled heat exchanger product group of the Harsco Industrial Segment and certain equipment sales in the Harsco Rail Segment. The Company currently recognizes revenues on such arrangements upon the completion of the efforts associated with these arrangements, but as a result of these changes, revenue from these arrangements will be recognized over time and increase revenue in earlier periods. Management continues to evaluate the effect of the new standard.
In July 2015, the FASB issued changes related to the simplification of the measurement of inventory. The changes require entities to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The changes do not apply to inventories that are measured using either the LIFO method or the retail inventory method. The changes become effective for the Company on January 1, 2017. Management has determined that these changes will not have a material impact on the Company's consolidated financial statements.
In November 2015, the FASB issued changes that require deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position. The changes apply to all entities that present a classified statement of financial position. The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected. The changes become effective for the Company on January 1, 2017. Had these changes been adopted, the Company's working capital would have decreased by approximately
$27 million
and
$38 million
at
December 31, 2016
and
December 31, 2015
, respectively.
In February 2016, the FASB issued changes in accounting for leases. The changes introduce a lessee model that brings most leases on the balance sheet. The changes also align many of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. Furthermore, the changes address other concerns related to the current leases model such as eliminating the requirement in current guidance for an entity to use bright-line tests in determining lease classification. The changes also require lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. The changes become effective for the Company on January 1, 2019. Management is currently evaluating the impact of these changes on its consolidated financial statements.
In March 2016, the FASB issued changes amending the accounting for stock-based compensation and requiring excess tax benefits and shortfalls to be recognized as a component of income tax expense rather than equity. These changes also require excess tax benefits and shortfalls to be presented as an operating activity on the Consolidated statement of cash flows and allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. These changes are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company will adopt these changes in the first quarter of 2017 by recording the cumulative impact of applying these changes to retained earnings, which will be approximately
$1 million
, related to the Company electing to not estimate forfeitures on stock compensation plans but rather recognize forfeitures as they occur. The inclusion of excess tax benefits and shortfalls as a component of the Company’s income tax expense will increase volatility within the provision for income taxes as the amount of excess tax benefits or deficiencies from stock-based compensation awards are dependent on the Company's stock price at the date an award vests. Had the Company adopted these changes at the beginning of 2016, income tax expense would not have been materially impacted for 2016.
In October 2016, the FASB issued changes which eliminate the requirement to defer the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The changes become effective for the Company on January 1, 2018 and are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Management is currently evaluating the impact of these changes on its consolidated financial statements.
In November 2016, the FASB issued changes that add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The changes become effective for the Company on January 1, 2019 with early adoption permitted. Management has determined that these changes will not have a material impact on the Company's consolidated financial statements.
3. Acquisitions
In January 2014, the Company acquired Hammco Corporation ("Hammco"), a U.S. manufacturer of high specification air-cooled heat exchangers for the natural gas and petrochemical processing markets. Hammco has been included in the results of the Harsco Industrial Segment. In March 2015, the Company acquired Protran Technology ("Protran"), a U.S. designer and producer of safety systems for transportation and industrial applications; and in April 2015, the Company acquired JK Rail Products, LLC ("JK Rail"), a provider of after-market parts for railroad track maintenance. Protran and JK Rail have been included in the results of the Harsco Rail Segment. Inclusion of pro forma financial information for these transactions is not necessary as the acquisitions are immaterial. The purchase price allocations for these acquisitions are final.
4. Accounts Receivable and Inventories
Accounts receivable consist of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2016
|
|
December 31
2015
|
Trade accounts receivable
|
|
$
|
248,354
|
|
|
$
|
280,526
|
|
Less: Allowance for doubtful accounts
|
|
(11,800
|
)
|
|
(25,649
|
)
|
Trade accounts receivable, net
|
|
$
|
236,554
|
|
|
$
|
254,877
|
|
|
|
|
|
|
Other receivables
(a)
|
|
$
|
21,053
|
|
|
$
|
30,395
|
|
|
|
(a)
|
Other receivables include insurance claim receivables, employee receivables, tax claim receivables and other miscellaneous receivables not included in Trade accounts receivable, net
|
The decrease in Allowance for doubtful accounts in 2016 is due to the write-off of a previously reserved accounts receivable balances.
The following table reflects the provision for doubtful accounts related to trade accounts receivable for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Provision for doubtful accounts related to trade accounts receivable
|
|
$
|
(38
|
)
|
|
$
|
13,047
|
|
|
$
|
9,892
|
|
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2016
|
|
December 31
2015
|
Finished goods
|
|
$
|
26,464
|
|
|
$
|
32,586
|
|
Work-in-process
|
|
22,815
|
|
|
30,959
|
|
Contracts-in-process
|
|
54,044
|
|
|
55,786
|
|
Raw materials and purchased parts
|
|
61,450
|
|
|
70,755
|
|
Stores and supplies
|
|
22,908
|
|
|
26,881
|
|
Total inventories
|
|
$
|
187,681
|
|
|
$
|
216,967
|
|
Valued at lower of cost or market:
|
|
|
|
|
LIFO basis
|
|
$
|
79,933
|
|
|
$
|
102,309
|
|
FIFO basis
|
|
64,742
|
|
|
64,760
|
|
Average cost basis
|
|
43,006
|
|
|
49,898
|
|
Total inventories
|
|
$
|
187,681
|
|
|
$
|
216,967
|
|
Inventories valued on the LIFO basis at
December 31, 2016
and
2015
were approximately
$33 million
and
$32 million
, respectively, less than the amounts of such inventories valued at current costs. During
2016
, as a result of reducing certain inventory quantities valued on a LIFO basis, net income (loss) decreased from that which would have been recorded under the FIFO basis of valuation by
$1.3 million
. During
2015
there was
no
significant impact on net income (loss) as a result of reducing certain inventory quantities valued on a LIFO basis. During
2014
, as a result of reducing certain inventory quantities valued on the LIFO basis, net income (loss) decreased from that which would have been recorded under the FIFO basis of valuation by
$0.1 million
.
Contracts-in-process consist of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2016
|
|
December 31
2015
|
Contract costs accumulated to date
|
|
$
|
90,276
|
|
|
$
|
55,786
|
|
Estimated forward loss provisions for contracts-in-process
(b)
|
|
(36,232
|
)
|
|
—
|
|
Contracts-in-process
(c)
|
|
$
|
54,044
|
|
|
$
|
55,786
|
|
|
|
(b)
|
To the extent that the estimated forward loss provision exceeds accumulated contract costs it is included in Other current liabilities on the Consolidated Balance Sheets. At
December 31, 2016
this amount totaled
$6.7 million
.
|
|
|
(c)
|
At
December 31, 2016
and
December 31, 2015
, the Company has
$101.1 million
and
$82.7 million
, respectively, of customer advances related to contracts-in-process. These amounts are included in Advances on contracts on the Consolidated Balance Sheets.
|
During 2016, as a result of increased vendor costs, ongoing discussions with SBB, and increased estimates for commissioning, certification and testing costs, as well as expected settlements with SBB, the Company concluded it will have a loss on the contracts with SBB. The Company recognized an estimated forward loss provision related to the SBB contracts of
$45.1 million
for the year ended
December 31, 2016
in Costs of products sold on the Consolidated Statements of Operations. There was
no
estimated forward loss provision at December 31, 2015 or 2014. The estimated forward loss provision represents the Company's best estimate best 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, but the Company is unable to estimate any further possible loss or range of loss at December 31, 2016.
The Company recognized
$0.2 million
and
$1.9 million
of revenue for the contracts with SBB for the years ended
December 31, 2016 and 2015, respectively, under the percentage-of-completion (units-of-delivery) method. The Company recognized no revenue for the contract with SBB for the year ended December 31, 2014. These revenues did not have a material impact on the Company's gross margins or results of operations for these periods. The Company has not yet recognized any revenue associated with the major equipment deliveries under the contracts with SBB. The majority of the equipment deliveries and related revenue recognition under these contracts are expected in 2017 through 2020.
5. Equity Method Investments
In November 2013, the Company sold the Company's Harsco Infrastructure Segment into a strategic venture with Clayton, Dubilier & Rice ("CD&R") as part of a transaction that combined the Harsco Infrastructure Segment with Brand Energy & Infrastructure Services, Inc., which CD&R simultaneously acquired (the "Infrastructure Transaction"). As a result of the Infrastructure Transaction, the Company retained an equity interest in Brand Energy & Infrastructure Service, Inc. and Subsidiaries ("Brand" or the "Infrastructure strategic venture") which was accounted for as an equity method investment in accordance with U.S. GAAP.
As part of the Infrastructure Transaction, the Company was required to make a quarterly payment to the Company's partner in the Infrastructure strategic venture, either (at the Company's election) (i) in cash, with total payments to equal approximately
$22 million
per year on a pre-tax basis (approximately
$15 million
per year after-tax), or (ii) in kind, through the transfer of approximately
3%
of the Company's ownership interest in the Infrastructure strategic venture on an annual basis (the "unit adjustment liability"). The Company recognized the change in fair value to the unit adjustment liability each period until the Company was no longer required to make these payments or chose not to make these payments. The change in fair value to the unit adjustment liability was a non-cash expense.
In March 2016, the Company elected not to make the quarterly cash payments to the Company's partner in the Infrastructure strategic venture for the remainder of 2016. Instead, the Company transferred approximately
3%
of its ownership interest in satisfaction of the Company's 2016 obligation related to the unit adjustment liability. As a result of not making the quarterly cash payments for 2016, the Company's ownership interest in the Infrastructure strategic venture decreased by approximately
3%
and the value of the unit adjustment liability was updated to reflect this change. Accordingly, the book value of the Company's equity method investment in Brand decreased by
$29.4 million
and the unit adjustment liability decreased by
$19.1 million
. The resulting net loss of
$10.3 million
was recognized in Change in fair value to the unit adjustment liability and loss on dilution and sale of equity method investment on the Consolidated Statement of Operations. This net loss was a non-cash expense.
In September 2016, the Company entered into an Omnibus Agreement with CDR Bullseye Holdings, L.P., Bullseye G.P., LLC, Bullseye Partnership, L.P., Bullseye Holdings, L.P. and Brand Energy & Infrastructure Holdings, Inc. (the “Brand Entities”), pursuant to which the Brand Entities repurchased the Company's remaining approximate
26%
interest in Brand.
In exchange for the Company's interest, (i) the Company received
$145 million
in cash, net, and (ii) the requirement for the Company to fund certain obligations to Brand through 2018 were satisfied, the present value of which equaled
$20.6 million
. In addition, the Company received
$1.4
million in accrued but unpaid fees, rent and expenses from the Brand Entities. As a result of the sale, the Company’s obligation to make quarterly payments related to the unit adjustment liability under the terms of a limited partnership agreement that governed the operation of the strategic venture terminated. The Company recognized a loss on the sale of its equity interest in Brand in the amount of
$43.5
million which was reflected in Change in fair value to unit adjustment liability and loss on dilution and sale of equity method investment on the Consolidated Statement of Operations.
The Company's equity interest in Brand and book value of the equity investment in Brand at December 31, 2015 were approximately
29%
and
$250.1
million, respectively. The Company's initial underlying equity in the net assets of Brand, upon consummation of the Infrastructure Transaction, was approximately
$225
million. The difference between the initial fair value
of the Company's equity method investment in Brand and Company's underlying equity in the net assets of Brand was determined to be equity method goodwill and was not amortized.
The Company's proportionate share of Brand's net income or loss is recorded one quarter in arrears. Brand's summarized balance sheet information at June 30, 2016 and September 30, 2015 and summarized statement of operations information for the period from October 1, 2015 through June 30, 2016, the year ended September 30, 2015 and the period from
November 27, 2013 through September 30, 2014 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
June 30
2016
|
|
September 30
2015
|
Summarized Balance Sheet Information of Brand:
|
|
|
|
|
Current assets
|
|
$
|
896,933
|
|
|
$
|
806,510
|
|
Property and equipment , net
|
|
884,979
|
|
|
894,537
|
|
Other noncurrent assets
|
|
1,454,951
|
|
|
1,519,722
|
|
Total assets
|
|
$
|
3,236,863
|
|
|
$
|
3,220,769
|
|
|
|
|
|
|
Short-term borrowings, including current portion of long-term debt
|
|
$
|
14,402
|
|
|
$
|
68,687
|
|
Other current liabilities
|
|
341,979
|
|
|
397,759
|
|
Long-term debt
|
|
1,857,162
|
|
|
1,736,081
|
|
Other noncurrent liabilities
|
|
351,714
|
|
|
383,638
|
|
Total liabilities
|
|
2,565,257
|
|
|
2,586,165
|
|
Equity
|
|
671,606
|
|
|
634,604
|
|
Total liabilities and equity
|
|
$
|
3,236,863
|
|
|
$
|
3,220,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Period From October 1, 2015 Through June 30 2016 (a)
|
|
Year Ended September 30 2015
|
|
Period From November 27 2013 Through September 30 2014 (b)
|
Summarized Statement of Operations Information of Brand:
|
|
|
|
|
|
|
Net revenues
|
|
$
|
2,333,561
|
|
|
$
|
2,976,471
|
|
|
$
|
2,559,556
|
|
Gross profit
|
|
499,005
|
|
|
649,596
|
|
|
559,376
|
|
Net income (loss) attributable to Brand Energy & Infrastructure Services, Inc. and Subsidiaries
|
|
20,756
|
|
|
605
|
|
|
(4,848
|
)
|
Harsco's equity in income (loss) of Brand
|
|
5,686
|
|
|
175
|
|
|
(1,595
|
)
|
|
|
(a)
|
The Company's equity method investment in Brand was sold in September 2016; accordingly equity income (loss) was recorded for the period from October 1, 2015 through June 30, 2016.
|
|
|
(b)
|
The Company's equity method investment in Brand began on November 26, 2013; accordingly, there is only approximately ten months of related equity income (loss). The results of the Harsco Infrastructure Segment from January 1, 2013 through the date of closing are reported in the Company's results of operations for 2013.
|
For the years ended 2016, 2015 and 2014, the Company recognized
$4.7 million
,
$8.5 million
and
$9.7 million
, respectively, of change in fair value to the unit adjustment liability, exclusive of the fair value adjustment resulting from the decision not to make the quarterly payments in 2016 and the loss related to the sale of the Company's interest, in Change in fair value to the unit adjustment liability and loss on dilution and sale of equity method investment on the Consolidated Statement of Operations. The Consolidated Balance Sheets as of
December 31, 2015
included balances related to the unit adjustment liability of
$79.9 million
in the current and non-current captions, Unit adjustment liability. As a result of the sale of the Company's equity interest in Brand, there were
no
remaining balances related to the unit adjustment liability at December 31, 2016. A reconciliation of beginning and ending balances related to the unit adjustment liability is included in Note 15, Financial Instruments.
Balances related to transactions between the Company and Brand are as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2016
|
|
December 31
2015
|
Balances due from Brand
|
|
$
|
—
|
|
|
$
|
1,557
|
|
Balances due to Brand
|
|
—
|
|
|
21,407
|
|
The balances between the Company and Brand, at December 31, 2015, related primarily to transition services and the funding of certain transferred defined benefit pension plan obligations through 2018. As part of the Omnibus Agreement, all remaining balances between Brand and the Company were settled through payment.
6. Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Estimated
Useful Lives
|
|
December 31
2016
|
|
December 31
2015
|
Land
|
|
—
|
|
$
|
10,606
|
|
|
$
|
10,932
|
|
Land improvements
|
|
5-20 years
|
|
15,032
|
|
|
15,277
|
|
Buildings and improvements
(a)
|
|
5-40 years
|
|
185,657
|
|
|
191,356
|
|
Machinery and equipment
|
|
3-20 years
|
|
1,525,156
|
|
|
1,661,914
|
|
Uncompleted construction
|
|
—
|
|
21,035
|
|
|
36,990
|
|
Gross property, plant and equipment
|
|
|
|
1,757,486
|
|
|
1,916,469
|
|
Less: Accumulated depreciation
|
|
|
|
(1,267,231
|
)
|
|
(1,352,434
|
)
|
Property, plant and equipment, net
|
|
|
|
$
|
490,255
|
|
|
$
|
564,035
|
|
(a) Buildings and improvements include leasehold improvements that are amortized over the shorter of their useful lives or the initial term of the lease.
Included in the amounts are
$8.7 million
and
$16.0 million
of property, plant and equipment under capital leases at
December 31, 2016
and
2015
, respectively.
7. Goodwill and Other Intangible Assets
Goodwill by Segment
The following table reflects the changes in carrying amounts of goodwill by segment for the years ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Harsco Metals
& Minerals
Segment
|
|
Harsco
Industrial
Segment
|
|
Harsco
Rail
Segment
|
|
Consolidated
Totals
|
Balance at December 31, 2014
|
|
$
|
400,006
|
|
|
$
|
6,839
|
|
|
$
|
9,310
|
|
|
$
|
416,155
|
|
Changes to goodwill
|
|
(493
|
)
|
|
(33
|
)
|
|
3,490
|
|
(a)
|
2,964
|
|
Foreign currency translation
|
|
(18,752
|
)
|
|
—
|
|
|
—
|
|
|
(18,752
|
)
|
Balance at December 31, 2015
|
|
380,761
|
|
|
6,806
|
|
|
12,800
|
|
|
400,367
|
|
Changes to goodwill
|
|
—
|
|
|
33
|
|
|
226
|
|
|
259
|
|
Foreign currency translation
|
|
(18,375
|
)
|
|
—
|
|
|
—
|
|
|
(18,375
|
)
|
Balance at December 31, 2016
|
|
$
|
362,386
|
|
|
$
|
6,839
|
|
|
$
|
13,026
|
|
|
$
|
382,251
|
|
|
|
(a)
|
Changes to goodwill in the Harsco Rail Segment relate to the acquisitions of Protran and JK Rail. See Note 3, Acquisitions, for additional information.
|
The Company's methodology for determining reporting unit fair value is described in Note 1, Summary of Significant Accounting Policies. Performance of the Company's
2016
annual impairment test did not result in impairment of any of the Company's reporting units.
Intangible Assets
Intangible assets totaled
$41.6 million
, net of accumulated amortization of
$153.5 million
at
December 31, 2016
and
$53.1 million
, net of accumulated amortization of
$148.7 million
at
December 31, 2015
. The following table reflects these intangible assets by major category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
(In thousands)
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Customer related
|
|
$
|
146,840
|
|
|
$
|
112,610
|
|
|
$
|
153,287
|
|
|
$
|
111,227
|
|
Patents
|
|
5,729
|
|
|
5,534
|
|
|
5,882
|
|
|
5,495
|
|
Technology related
|
|
25,687
|
|
|
25,634
|
|
|
25,559
|
|
|
23,089
|
|
Trade names
|
|
8,306
|
|
|
4,529
|
|
|
8,303
|
|
|
4,194
|
|
Other
|
|
8,512
|
|
|
5,200
|
|
|
8,701
|
|
|
4,669
|
|
Total
|
|
$
|
195,074
|
|
|
$
|
153,507
|
|
|
$
|
201,732
|
|
|
$
|
148,674
|
|
Amortization expense for intangible assets was
$7.9 million
,
$8.8 million
and
$9.9 million
for
2016
,
2015
and
2014
, respectively. The following table shows the estimated amortization expense for the next five fiscal years based on current intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
Estimated amortization expense
(b)
|
|
$
|
5,000
|
|
|
$
|
4,750
|
|
|
$
|
4,500
|
|
|
$
|
4,250
|
|
|
$
|
4,000
|
|
|
|
(b)
|
These estimated amortization expense amounts do not reflect the potential effect of future foreign currency exchange rate fluctuations.
|
8. Debt and Credit Agreements
The Company has a multi-year revolving credit facility (the "Revolving Credit Facility") that is available for use throughout the world. The following table illustrates the amount outstanding under the Revolving Credit Facility and available credit at
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
(In thousands)
|
|
Facility
Limit
|
|
Outstanding
Balance
|
|
Outstanding Letters of Credit
|
|
Available
Credit
|
Revolving Credit Facility (a U.S.-based program)
|
|
$
|
400,000
|
|
|
$
|
98,000
|
|
|
$
|
43,549
|
|
|
$
|
258,451
|
|
On December 2, 2015, the Company entered into (i) an amendment and restatement agreement and (ii) a second amended and restated credit agreement (together, the “Financing Agreements”). The Financing Agreements increased the Company's overall borrowing capacity from
$500 million
to
$600 million
by (i) amending and restating the Company’s then existing credit agreement, (ii) establishing a term loan A facility in an initial aggregate principal amount of
$250 million
, by converting a portion of the outstanding balance under the then existing credit agreement on a dollar-for-dollar basis and (iii) reducing the Revolving Credit Facility limit to
$350 million
.
During September 2016, the Company received approximately
$145 million
in cash, net, from its sale of its remaining
26%
equity interest in the Infrastructure strategic venture. The Company used these proceeds to repay
$85.0 million
on the term loan A facility and
$60.0 million
on the Revolving Credit Facility. Related to the repayment of the term loan A facility, the Company expensed
$1.1 million
of previously deferred financing costs.
In November 2016, the Company entered into a new senior secured credit facility (the “Senior Secured Credit Facility”), consisting of a
$400 million
Revolving Credit Facility and a
$550 million
term loan B facility (the "Term Loan Facility"). Upon closing of the Senior Secured Credit Facility, the Company amended and extended the existing Revolving Credit Facility, repaid the existing term loan A facility and redeemed, satisfied and discharged the Notes in accordance with the indenture governing the Notes. As a result, a charge of
$35.3 million
was recorded during the fourth quarter of 2016 consisting principally of the cost of early extinguishment of the Notes and the write-off of unamortized deferred financing costs associated with the Company’s existing Financing Agreements and the Notes, and is reflected in the financing activities section of the Consolidated Statements of Cash Flows as a reduction of long-term debt.
Borrowings under the Revolving Credit Facility bear interest at a rate per annum ranging from
87.5
to
200
basis points over the base rate or
187.5
to
300
basis points over the adjusted London Interbank Offered Rate ("LIBOR") as defined in the credit agreement governing the Senior Secured Credit Facility (the "Credit Agreement"). Any principal amount outstanding under the Revolving Credit Facility is due and payable on the maturity of the Revolving Credit Facility. The Revolving Credit Facility matures on November 2, 2021. Additionally, upon the completion of the potential sale or separation of the Harsco Metals & Minerals Segment, the Revolving Credit Facility would be reduced, if necessary, to reflect a consolidated net debt to consolidated adjusted EBITDA ratio of
2.5
to 1.0 on a pro-forma basis.
Borrowings under the Term Loan Facility bear interest at a rate per annum ranging from
375
to
400
basis points over the base rate or
475
to
500
basis points over the adjusted LIBOR rate, subject to a
1%
floor, as defined in the Credit Agreement. The Term Loan Facility requires scheduled quarterly payments, each equal to
0.25%
of the original principal amount of the loans under the Term Loan Facility made on the closing date. These payments are reduced by the application of any prepayments, and any remaining balance is due and payable on the maturity of the Term Loan Facility. The Term Loan Facility matures on November 2, 2023.
The Credit Agreement requires certain mandatory prepayments of the Term Loan Facility, subject to certain exceptions, based on net cash proceeds of certain sales or distributions of assets, as well as certain casualty and condemnation events, in some cases subject to reinvestment rights and certain other exceptions; net cash proceeds of any issuance of debt, excluded permitted debt issuances; and a percentage of excess cash flow, as defined by the Credit Agreement, during a fiscal year.
The Senior Secured Credit Facility imposes certain restrictions including, but not limited to, restrictions as to types and amounts of debt of liens that may be incurred by the Company; limitations on increases in dividend payments and limitations on certain acquisitions by the Company.
With respect to the Senior Secured Facility, the obligations of the Company are guaranteed by substantially all of the Company’s current and future wholly-owned domestic subsidiaries (“Guarantors”). All obligations under the Senior Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Guarantors.
In January 2017, the Company entered into a series of fixed-floating interest rate swaps that cover the period from 2018 through 2021, and had the effect of converting
$300 million
of the Term Loan Facility from floating-rate to fixed-rate. The fixed rates provided by the swaps replace the adjusted LIBOR rate in the interest calculation, range from
1.65%
for 2018 to
2.71%
for 2021.
At
December 31, 2016
, the Company had
$648.0 million
of borrowings under the Senior Secured Credit Facility consisting of
$550.0 million
under the Term Loan Facility and
$98.0 million
under the Revolving Credit Facility. At December 31, 2016, of these balances
$642.5 million
was classified as Long-term debt and
$5.5 million
was classified as Current maturities of long-term debt on the Consolidated Balance Sheets. At
December 31, 2015
, the Company had
$415.0 million
of borrowings under the Financing Agreements consisting of
$250.0 million
under the term loan A facility and
$165.0 million
under the Revolving Credit Facility. At December 31, 2015, of these balances
$380.5 million
was classified as Long-term debt,
$22.0 million
was classified as Short-term borrowings and
$12.5 million
was classified as Current maturities of long-term debt on the Consolidated Balance Sheets.
Short-term borrowings amounted to
$4.3 million
and
$30.2 million
at
December 31, 2016
and
2015
, respectively. At December 31, 2016, Short-term borrowings consist primarily of bank overdrafts. At December 31, 2015, Short-term borrowings consist primarily of
$22.0
million of Revolving Credit Facility borrowings and bank overdrafts. The weighted-average interest rate for short-term borrowings at
December 31, 2016
and
2015
was
6.2%
and
4.3%
, respectively.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
2016
|
|
December 31
2015
|
5.75% notes due May 15, 2018
|
|
$
|
—
|
|
|
$
|
449,005
|
|
Senior Secured Credit Facilities:
|
|
|
|
|
Term Loan A Facility with an interest rate of 2.9% at December 31, 2015
|
|
—
|
|
|
250,000
|
|
Term Loan B Facility with an interest rate of 6.0% at December 31, 2016
|
|
550,000
|
|
|
|
Revolving Credit Facility with an average interest rate of 3.6% and 3.2% at December 31, 2016 and 2015, respectively
|
|
98,000
|
|
|
143,000
|
|
Other financing payable (including capital leases) in varying amounts due principally through 2017 with a weighted-average interest rate of 5.7% and 5.6% at December 31, 2016 and 2015, respectively
|
|
25,410
|
|
|
38,830
|
|
Total debt obligations
|
|
673,410
|
|
|
880,835
|
|
Less: deferred financing costs
|
|
(18,597
|
)
|
|
(10,130
|
)
|
Total debt obligations, net of deferred financing costs
|
|
654,813
|
|
|
870,705
|
|
Less: current maturities of long-term debt
|
|
(25,574
|
)
|
|
(25,084
|
)
|
Long-term debt
|
|
$
|
629,239
|
|
|
$
|
845,621
|
|
The maturities of long-term debt for the four years following
December 31, 2017
are as follows:
|
|
|
|
|
|
(In thousands)
|
|
|
2018
|
|
$
|
9,924
|
|
2019
|
|
6,217
|
|
2020
|
|
5,664
|
|
2021
|
|
103,531
|
|
Cash payments for interest on debt were
$49.6 million
,
$44.4 million
and
$44.2 million
in
2016
,
2015
and
2014
, respectively.
The Credit Agreement contains a consolidated net debt to consolidated adjusted earnings before interest, tax, depreciation and amortization ("EBITDA") ratio covenant, which is not to exceed
4.0
to
1.0
, and a minimum consolidated adjusted EBITDA to consolidated interest charges ratio covenant, which is not to be less than
3.0
to
1.0
. The consolidated net debt to consolidated adjusted EBITDA ratio covenant is reduced to
3.75
to
1.0
after December 31, 2016 and to
3.5
to
1.0
after December 31, 2017. At
December 31, 2016
, the Company was in compliance with these and all other covenants.
9. Operating Leases
The Company leases certain property and equipment under noncancelable operating leases. Rental expense under such operating leases was
$16.9 million
,
$18.9 million
and
$19.7 million
in
2016
,
2015
and
2014
, respectively.
Future minimum payments under operating leases with noncancelable terms are as follows:
|
|
|
|
|
|
(In thousands)
|
|
|
2017
|
|
$
|
12,482
|
|
2018
|
|
9,187
|
|
2019
|
|
7,429
|
|
2020
|
|
6,434
|
|
2021
|
|
5,040
|
|
After 2021
|
|
16,932
|
|
Total minimum rentals to be received in the future under noncancelable subleases at
December 31, 2016
are
$1.1 million
.
10. Employee Benefit Plans
Pension Benefits
The Company has defined benefit pension plans covering a substantial number of employees. The defined benefits for salaried employees generally are based on years of service and the employee's level of compensation during specified periods of employment. Defined benefit pension plans covering hourly employees generally provide benefits of stated amounts for each year of service. The multiemployer pension plans ("MEPPs"), in which the Company participates, provide benefits to certain unionized employees. The Company's funding policy for qualified plans is consistent with statutory regulations and customarily equals the amount deducted for income tax purposes. Periodic voluntary contributions are made, as recommended, by the Company's Pension Committee. The Company's policy is to amortize prior service costs of defined benefit pension plans over the average future service period of active plan participants.
For most U.S. defined benefit pension plans and a majority of international defined benefit pension plans, accrued service is no longer granted. In place of these plans, the Company has established defined contribution plans providing for the Company to contribute a specified matching amount for participating employees' contributions to the plan. For U.S. employees, this match is made on employee contributions up to
4%
of eligible compensation. Additionally, the Company may provide a discretionary contribution for eligible employees. There have been no discretionary contributions provided for the years
2016
,
2015
and
2014
. For non-U.S. employees, this match is up to
6%
of eligible compensation with an additional
2%
going towards insurance and administrative costs.
Net periodic pension cost ("NPPC") for U.S. and international plans for
2016
,
2015
and
2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3,783
|
|
|
$
|
2,889
|
|
|
$
|
2,233
|
|
|
$
|
1,585
|
|
|
$
|
1,648
|
|
|
$
|
1,610
|
|
Interest cost
|
|
10,165
|
|
|
12,357
|
|
|
12,868
|
|
|
26,822
|
|
|
36,282
|
|
|
43,230
|
|
Expected return on plan assets
|
|
(14,402
|
)
|
|
(16,812
|
)
|
|
(16,786
|
)
|
|
(42,979
|
)
|
|
(50,091
|
)
|
|
(49,927
|
)
|
Recognized prior service costs
|
|
63
|
|
|
81
|
|
|
90
|
|
|
189
|
|
|
188
|
|
|
184
|
|
Recognized losses
|
|
5,493
|
|
|
4,919
|
|
|
3,352
|
|
|
12,002
|
|
|
16,875
|
|
|
14,102
|
|
Settlement/curtailment loss (gain)
|
|
276
|
|
|
—
|
|
|
—
|
|
|
79
|
|
|
(23
|
)
|
|
60
|
|
Defined benefit pension plan cost (income)
|
|
5,378
|
|
|
3,434
|
|
|
1,757
|
|
|
(2,302
|
)
|
|
4,879
|
|
|
9,259
|
|
Multiemployer pension plans
|
|
636
|
|
|
853
|
|
|
1,199
|
|
|
1,368
|
|
|
1,463
|
|
|
1,762
|
|
Defined contribution plans
|
|
3,833
|
|
|
3,921
|
|
|
4,704
|
|
|
5,807
|
|
|
6,765
|
|
|
8,033
|
|
Net periodic pension cost
|
|
$
|
9,847
|
|
|
$
|
8,208
|
|
|
$
|
7,660
|
|
|
$
|
4,873
|
|
|
$
|
13,107
|
|
|
$
|
19,054
|
|
The change in the financial status of the defined benefit pension plans and amounts recognized on the Consolidated Balance Sheets at
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
307,390
|
|
|
$
|
325,319
|
|
|
$
|
900,104
|
|
|
$
|
1,049,603
|
|
Service cost
|
|
3,783
|
|
|
2,889
|
|
|
1,585
|
|
|
1,648
|
|
Interest cost
|
|
10,165
|
|
|
12,357
|
|
|
26,822
|
|
|
36,282
|
|
Plan participants' contributions
|
|
—
|
|
|
—
|
|
|
68
|
|
|
61
|
|
Amendments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
Actuarial (gain) loss
|
|
5,223
|
|
|
(14,417
|
)
|
|
194,469
|
|
|
(85,028
|
)
|
Settlements/curtailments
|
|
—
|
|
|
—
|
|
|
(1,527
|
)
|
|
(250
|
)
|
Benefits paid
|
|
(20,909
|
)
|
|
(18,758
|
)
|
|
(32,079
|
)
|
|
(38,197
|
)
|
Effect of foreign currency
|
|
—
|
|
|
—
|
|
|
(137,082
|
)
|
|
(64,062
|
)
|
Benefit obligation at end of year
|
|
$
|
305,652
|
|
|
$
|
307,390
|
|
|
$
|
952,360
|
|
|
$
|
900,104
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
208,870
|
|
|
$
|
233,350
|
|
|
$
|
755,966
|
|
|
$
|
791,045
|
|
Actual return on plan assets
|
|
15,289
|
|
|
(8,011
|
)
|
|
105,027
|
|
|
22,602
|
|
Employer contributions
|
|
2,021
|
|
|
2,289
|
|
|
17,192
|
|
|
27,402
|
|
Plan participants' contributions
|
|
—
|
|
|
—
|
|
|
68
|
|
|
61
|
|
Settlements/curtailments
|
|
—
|
|
|
—
|
|
|
(1,527
|
)
|
|
(250
|
)
|
Benefits paid
|
|
(20,909
|
)
|
|
(18,758
|
)
|
|
(31,485
|
)
|
|
(37,693
|
)
|
Effect of foreign currency
|
|
—
|
|
|
—
|
|
|
(112,498
|
)
|
|
(47,201
|
)
|
Fair value of plan assets at end of year
|
|
$
|
205,271
|
|
|
$
|
208,870
|
|
|
$
|
732,743
|
|
|
$
|
755,966
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(100,381
|
)
|
|
$
|
(98,520
|
)
|
|
$
|
(219,617
|
)
|
|
$
|
(144,138
|
)
|
Amounts recognized on the Consolidated Balance Sheets for defined benefit pension plans consist of the following at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
|
December 31
|
|
December 31
|
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Noncurrent assets
|
|
$
|
668
|
|
|
$
|
229
|
|
|
$
|
1,118
|
|
|
$
|
1,229
|
|
Current liabilities
|
|
2,278
|
|
|
2,072
|
|
|
505
|
|
|
479
|
|
Noncurrent liabilities
|
|
98,771
|
|
|
96,678
|
|
|
220,230
|
|
|
144,888
|
|
Accumulated other comprehensive loss before tax
|
|
161,075
|
|
|
162,571
|
|
|
434,868
|
|
|
376,641
|
|
Amounts recognized in Accumulated other comprehensive loss, before tax, for defined benefit pension plans consist of the following at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net actuarial loss
|
|
$
|
161,042
|
|
|
$
|
162,475
|
|
|
$
|
433,626
|
|
|
$
|
375,725
|
|
Prior service cost
|
|
33
|
|
|
96
|
|
|
1,242
|
|
|
916
|
|
Total
|
|
$
|
161,075
|
|
|
$
|
162,571
|
|
|
$
|
434,868
|
|
|
$
|
376,641
|
|
The estimated amounts that will be amortized from Accumulated other comprehensive loss into defined benefit pension plan NPPC in
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
U.S. Plans
|
|
International Plans
|
Net actuarial loss
|
|
$
|
5,701
|
|
|
$
|
15,627
|
|
Prior service cost
|
|
33
|
|
|
175
|
|
Total
|
|
$
|
5,734
|
|
|
$
|
15,802
|
|
The Company's estimate of expected contributions to be paid in
2017
for the U.S. and international defined benefit plans are
$6.3 million
and
$16.6 million
, respectively.
Future Benefit Payments
The expected benefit payments for defined benefit pension plans over the next ten years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022-2026
|
U.S. Plans
|
|
$
|
19.8
|
|
|
$
|
19.3
|
|
|
$
|
19.0
|
|
|
$
|
19.0
|
|
|
$
|
19.0
|
|
|
$
|
95.0
|
|
International Plans
|
|
32.7
|
|
|
33.6
|
|
|
34.5
|
|
|
35.9
|
|
|
37.4
|
|
|
203.2
|
|
Net Periodic Pension Cost and Defined Benefit Pension Obligation Assumptions
The weighted-average actuarial assumptions used to determine the defined benefit pension plan NPPC for
2016
,
2015
and
2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
December 31
|
|
International Plans
December 31
|
|
Global Weighted-Average
December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Discount rates
|
|
4.2
|
%
|
|
3.9
|
%
|
|
4.7
|
%
|
|
3.8
|
%
|
|
3.7
|
%
|
|
4.7
|
%
|
|
3.9
|
%
|
|
3.7
|
%
|
|
4.7
|
%
|
Expected long-term rates of return on plan assets
|
|
7.3
|
%
|
|
7.5
|
%
|
|
7.5
|
%
|
|
6.5
|
%
|
|
6.8
|
%
|
|
6.8
|
%
|
|
6.7
|
%
|
|
7.0
|
%
|
|
7.0
|
%
|
Rates of compensation increase
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.2
|
%
|
|
3.2
|
%
|
|
3.4
|
%
|
|
3.2
|
%
|
|
3.2
|
%
|
|
3.4
|
%
|
The expected long-term rates of return on defined benefit pension plan assets for the
2017
NPPC are
7.3%
for the U.S. plans and
5.9%
for the international plans. The expected global long-term rate of return on assets for
2017
is
6.2%
.
The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
Global Weighted-Average
|
|
|
December 31
|
|
December 31
|
|
December 31
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Discount rates
|
|
4.0
|
%
|
|
4.2
|
%
|
|
2.8
|
%
|
|
3.8
|
%
|
|
3.1
|
%
|
|
3.9
|
%
|
Rates of compensation increase
|
|
—
|
%
|
|
3.0
|
%
|
|
3.3
|
%
|
|
3.2
|
%
|
|
3.3
|
%
|
|
3.2
|
%
|
The U.S. discount rate was determined using a yield curve that was produced from a universe containing approximately 70
0
U.S. dollar-denominated, AA-graded corporate bonds, all of which were noncallable (or callable with make-whole provisions), and excluding the1
0%
of the bonds with the highest yields and the 1
0%
with the lowest yields within each maturity group. The discount rate was then developed as the level-equivalent rate that would produce the same present value as that using spot rates to discount the projected benefit payments. For international plans, the discount rate is aligned to corporate bond yields in the local markets, normally AA-rated corporations. The process and selection seeks to approximate the cash inflows with the timing and amounts of the expected benefit payments.
The Company changed the method utilized to estimate the service cost and interest cost components of NPPC for defined benefit pension plans for 2016 and later. The more precise application of discount rates for measuring both service costs and interest costs employs yield curve spot rates on a year-by-year expected cash flow basis, using the same yield curves that the Company has previously used. This change in method represents a change in accounting estimate and has been accounted for in the period of change. This change in method decreased the Company's NPPC by approximately $7 million for 2016, compared to what NPPC would have been under the prior method.
Accumulated Benefit Obligation
The accumulated benefit obligation for all defined benefit pension plans at
December 31, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
|
December 31
|
|
December 31
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Accumulated benefit obligation
|
|
$
|
305.7
|
|
|
$
|
307.4
|
|
|
$
|
946.3
|
|
|
$
|
894.8
|
|
Defined Benefit Pension Plans with Accumulated Benefit Obligation in Excess of Plan Assets
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for defined benefit pension plans with accumulated benefit obligations in excess of plan assets at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
International Plans
|
|
|
December 31
|
|
December 31
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Projected benefit obligation
|
|
$
|
296.7
|
|
|
$
|
297.5
|
|
|
$
|
913.0
|
|
|
$
|
876.9
|
|
Accumulated benefit obligation
|
|
296.7
|
|
|
297.5
|
|
|
910.0
|
|
|
871.9
|
|
Fair value of plan assets
|
|
195.6
|
|
|
198.8
|
|
|
694.9
|
|
|
731.6
|
|
The asset allocations attributable to the Company's U.S. defined benefit pension plans at
December 31, 2016
and
2015
, and the long-term target allocation of plan assets, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Target Long-Term
Allocation
|
|
Percentage of Plan Assets
December 31
|
U.S. Plans Asset Category
|
|
|
2016
|
|
2015
|
Domestic equity securities
|
|
33%-43%
|
|
39.7
|
%
|
|
37.2
|
%
|
International equity securities
|
|
14%-24%
|
|
18.5
|
%
|
|
18.5
|
%
|
Fixed income securities
|
|
28%-38%
|
|
30.9
|
%
|
|
32.6
|
%
|
Cash and cash equivalents
|
|
Less than 5%
|
|
1.0
|
%
|
|
1.7
|
%
|
Other
(a)
|
|
5%-15%
|
|
9.9
|
%
|
|
10.0
|
%
|
|
|
(a)
|
Investments within this caption include diversified global asset allocation funds.
|
Defined benefit pension plan assets are allocated among various categories of equities, fixed income securities and cash and cash equivalents with professional investment managers whose performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts an asset/liability modeling study and accordingly adjusts investments among and within asset categories to ensure the long-term investment strategy is aligned with the profile of benefit obligations.
The Company reviews the long-term expected return on asset assumption on a periodic basis taking into account a variety of factors including the historical investment returns achieved over a long-term period, the targeted allocation of plan assets and future expectations based on a model of asset returns for an actively managed portfolio. The model simulates
1,000
different capital market results over
20 years
. For both
2017
and
2016
, the expected return-on-asset assumption for U.S. defined benefit pension plans was
7.3%
.
The U.S. defined benefit pension plans' assets include
450,000
shares of the Company's common stock at both
December 31, 2016 and 2015, valued at
$6.1 million
and
$3.5 million
, respectively. These shares represented
3.0%
and
1.7%
of total U.S. plan assets at
December 31, 2016
and
2015
, respectively. There was less than
$0.1 million
of dividends paid to the U.S. defined benefit pension plan on the Company's common stock during 2016. Dividends paid to the U.S. defined benefit pension plan on the Company's common stock amounted to
$0.4
million in
2015
.
The asset allocations attributable to the Company's international defined benefit pension plans at
December 31, 2016
and
2015
and the long-term target allocation of plan assets, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
International Plans Asset Category
|
|
Target Long-Term
Allocation
|
|
Percentage of Plan Assets
December 31
|
|
|
2016
|
|
2015
|
Equity securities
|
|
32.5
|
%
|
|
37.1
|
%
|
|
33.7
|
%
|
Fixed income securities
|
|
42.5
|
%
|
|
43.9
|
%
|
|
43.3
|
%
|
Cash and cash equivalents
|
|
—
|
|
|
0.3
|
%
|
|
0.3
|
%
|
Other
(b)
|
|
25.0
|
%
|
|
18.7
|
%
|
|
22.7
|
%
|
(b) Investments within this caption include diversified growth funds, real estate funds and infrastructure funds.
International defined benefit pension plan assets at
December 31, 2016
in the U.K. defined benefit pension plan amounted to approximately
94%
of the international defined benefit pension plan assets. The U.K. plan assets are allocated among various categories of equities, fixed income securities and cash and cash equivalents with professional investment managers whose performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts asset/liability modeling studies and accordingly adjusts investment amounts within asset categories to ensure the long-term investment strategy is aligned with the profile of benefit obligations.
For the international long-term rate of return assumption, the Company considered the current level of expected returns in risk-free investments (primarily government bonds); the historical level of the risk premium associated with other asset classes in which the portfolio is invested; and the expectations for future returns of each asset class and plan expenses. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets. The
2017
and
2016
, the expected return on asset assumption for the U.K. plan was
5.8%
and
6.6%
, respectively. The remaining international defined benefit pension plans, with plant assets representing approximately
6%
of the international defined benefit pension plan assets, are under the guidance of professional investment managers and have similar investment objectives.
The fair values of the Company's U.S. defined benefit pension plans' assets at
December 31, 2016
by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
Domestic equities:
|
|
|
|
|
|
|
Common stocks
|
|
$
|
27,339
|
|
|
$
|
27,339
|
|
|
$
|
—
|
|
Mutual funds—equities
|
|
54,102
|
|
|
9,928
|
|
|
44,174
|
|
International equities—mutual funds
|
|
37,948
|
|
|
37,948
|
|
|
—
|
|
Fixed income investments:
|
|
|
|
|
|
|
U.S. Treasuries and collateralized securities
|
|
14,240
|
|
|
—
|
|
|
14,240
|
|
Corporate bonds and notes
|
|
11,457
|
|
|
11,457
|
|
|
—
|
|
Mutual funds—bonds
|
|
37,745
|
|
|
11,927
|
|
|
25,818
|
|
Other—mutual funds
|
|
20,346
|
|
|
20,346
|
|
|
—
|
|
Cash and money market accounts
|
|
2,094
|
|
|
2,094
|
|
|
—
|
|
Total
|
|
$
|
205,271
|
|
|
$
|
121,039
|
|
|
$
|
84,232
|
|
The fair values of the Company's U.S. defined benefit pension plans' assets at
December 31, 2015
by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
Domestic equities:
|
|
|
|
|
|
|
Common stocks
|
|
$
|
35,619
|
|
|
$
|
35,619
|
|
|
$
|
—
|
|
Mutual funds—equities
|
|
42,093
|
|
|
11,595
|
|
|
30,498
|
|
International equities—mutual funds
|
|
38,787
|
|
|
38,787
|
|
|
—
|
|
Fixed income investments:
|
|
|
|
|
|
|
U.S. Treasuries and collateralized securities
|
|
15,506
|
|
|
—
|
|
|
15,506
|
|
Corporate bonds and notes
|
|
12,987
|
|
|
12,987
|
|
|
—
|
|
Mutual funds—bonds
|
|
39,594
|
|
|
12,094
|
|
|
27,500
|
|
Other—mutual funds
|
|
20,803
|
|
|
20,803
|
|
|
—
|
|
Cash and money market accounts
|
|
3,481
|
|
|
3,481
|
|
|
—
|
|
Total
|
|
$
|
208,870
|
|
|
$
|
135,366
|
|
|
$
|
73,504
|
|
The fair values of the Company's international defined benefit pension plans' assets at
December 31, 2016
by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Equity securities:
|
|
|
|
|
|
|
|
|
Mutual funds—equities
|
|
$
|
272,070
|
|
|
$
|
—
|
|
|
$
|
272,070
|
|
|
$
|
—
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
Mutual funds—bonds
|
|
314,098
|
|
|
—
|
|
|
314,098
|
|
|
—
|
|
Insurance contracts
|
|
7,657
|
|
|
—
|
|
|
7,657
|
|
|
—
|
|
Other:
|
|
|
|
|
|
|
|
|
Real estate funds/limited partnerships
|
|
23,714
|
|
|
—
|
|
|
23,714
|
|
|
—
|
|
Other mutual funds
|
|
113,345
|
|
|
—
|
|
|
113,345
|
|
|
—
|
|
Cash and money market accounts
|
|
1,859
|
|
|
1,859
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
732,743
|
|
|
$
|
1,859
|
|
|
$
|
730,884
|
|
|
$
|
—
|
|
The fair values of the Company's international defined benefit pension plans' assets at
December 31, 2015
by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Equity securities:
|
|
|
|
|
|
|
|
|
Mutual funds—equities
|
|
$
|
255,937
|
|
|
$
|
—
|
|
|
$
|
255,937
|
|
|
$
|
—
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
Mutual funds—bonds
|
|
320,259
|
|
|
—
|
|
|
320,259
|
|
|
—
|
|
Insurance contracts
|
|
7,306
|
|
|
—
|
|
|
7,306
|
|
|
—
|
|
Other:
|
|
|
|
|
|
|
|
|
Real estate funds / limited partnerships
|
|
52,313
|
|
|
—
|
|
|
27,951
|
|
|
24,362
|
|
Other mutual funds
|
|
117,646
|
|
|
—
|
|
|
117,646
|
|
|
—
|
|
Cash and money market accounts
|
|
2,505
|
|
|
2,505
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
755,966
|
|
|
$
|
2,505
|
|
|
$
|
729,099
|
|
|
$
|
24,362
|
|
The following table summarizes changes in the fair value of Level 3 assets in international defined benefit pension plans for
2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Asset Changes for the Twelve Months Ended December 31
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Real Estate Limited Partnership:
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
24,362
|
|
|
$
|
22,647
|
|
|
$
|
20,423
|
|
Contributions to partnership
|
|
—
|
|
|
109
|
|
|
385
|
|
Cash distributions received
|
|
—
|
|
|
(10,062
|
)
|
|
(1,614
|
)
|
Actual return related to plan assets
|
|
(2,387
|
)
|
|
11,668
|
|
|
3,453
|
|
Liquidation of investment
|
|
(21,975
|
)
|
|
—
|
|
|
—
|
|
Balance at end of year
|
|
$
|
—
|
|
|
$
|
24,362
|
|
|
$
|
22,647
|
|
Following is a description of the valuation methodologies used for the defined benefit pension plans' investments measured at fair value:
|
|
•
|
Level 1 Fair Value Measurements—Investments in interest-bearing cash are stated at cost, which approximates fair value. The fair values of money market accounts and certain mutual funds are based on quoted net asset values of the shares held by the plan at year-end. The fair values of domestic and international stocks and corporate bonds, notes and convertible debentures are valued at the closing price reported in the active market on which the individual securities are traded.
|
|
|
•
|
Level 2 Fair Value Measurements—The fair values of investments in mutual funds for which quoted net asset values in an active market are not available are valued by the investment advisor based on the current market values of the underlying assets of the mutual fund based on information reported by the investment consistent with audited financial statements of the mutual fund. Further information concerning these mutual funds may be obtained from their separate audited financial statements. Investments in U.S. Treasury notes and collateralized securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings.
|
|
|
•
|
Level 3 Fair Value Measurements—Real estate limited partnership interests are valued by the general partners based on the underlying assets. The limited partnership interests are valued using unobservable inputs and have been classified within Level 3 of the fair value hierarchy.
|
Multiemployer Pension Plans
The Company, through the Harsco Metals & Minerals Segment, contributes to several MEPPs under the terms of collective-bargaining agreements that cover union-represented employees, many of whom are temporary in nature. The Company's total contributions to MEPPs were
$2.0 million
,
$2.5 million
and
$3.0 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
11. Income Taxes
Income (loss) from continuing operations before income taxes and equity income (loss) as reported on the Consolidated Statements of Operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
U.S.
|
|
$
|
(99,939
|
)
|
|
$
|
16,169
|
|
|
$
|
22,951
|
|
International
|
|
20,468
|
|
|
18,646
|
|
|
(8,813
|
)
|
Total income (loss) from continuing operations before income taxes and equity income (loss)
|
|
$
|
(79,471
|
)
|
|
$
|
34,815
|
|
|
$
|
14,138
|
|
Income tax expense as reported on the Consolidated Statements of Operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Income tax expense (benefit):
|
|
|
|
|
|
|
Currently payable:
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
(4,088
|
)
|
|
$
|
408
|
|
|
$
|
5,622
|
|
U.S. state
|
|
365
|
|
|
546
|
|
|
557
|
|
International
|
|
18,014
|
|
|
23,095
|
|
|
14,569
|
|
Total income taxes currently payable
|
|
14,291
|
|
|
24,049
|
|
|
20,748
|
|
Deferred U.S. federal
|
|
(8,195
|
)
|
|
2,651
|
|
|
3,447
|
|
Deferred U.S. state
|
|
2,238
|
|
|
812
|
|
|
893
|
|
Deferred international
|
|
(1,697
|
)
|
|
166
|
|
|
5,278
|
|
Total income tax expense
|
|
$
|
6,637
|
|
|
$
|
27,678
|
|
|
$
|
30,366
|
|
Cash payments for income taxes were
$14.6 million
,
$18.9 million
and
$36.0 million
for
2016
,
2015
and
2014
, respectively.
A reconciliation of the normal expected statutory U.S. federal income tax expense (benefit) to the actual income tax expense as reported on the Consolidated Statements of Operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
U.S. federal income tax
|
|
$
|
(27,815
|
)
|
|
$
|
12,185
|
|
|
$
|
4,949
|
|
U.S. state income taxes, net of federal income tax benefit
|
|
(355
|
)
|
|
496
|
|
|
713
|
|
U.S. domestic manufacturing deductions and credits
|
|
(661
|
)
|
|
(2,504
|
)
|
|
(1,882
|
)
|
Capital loss on sale of equity interest in Brand with no realizable tax benefit
|
|
16,106
|
|
|
—
|
|
|
—
|
|
Difference in effective tax rates on international earnings and remittances
|
|
2,006
|
|
|
5,095
|
|
|
4,397
|
|
Uncertain tax position contingencies and settlements
|
|
(1,886
|
)
|
|
1,416
|
|
|
(5,298
|
)
|
Changes in realization on beginning of the year deferred tax assets
|
|
1,978
|
|
|
923
|
|
|
2,283
|
|
Forward Loss Provisions in SBB Contract with no realizable tax benefits
|
|
15,768
|
|
|
—
|
|
|
—
|
|
Restructuring and impairment charges with no realizable tax benefits
|
|
—
|
|
|
8,508
|
|
|
21,969
|
|
U.S. non-deductible expenses
|
|
724
|
|
|
874
|
|
|
1,216
|
|
(Income) loss related to the Infrastructure Transaction
|
|
(644
|
)
|
|
580
|
|
|
2,592
|
|
Cumulative effect of change in statutory tax rates/laws
|
|
(388
|
)
|
|
340
|
|
|
246
|
|
Income (loss) from unconsolidated entities
|
|
2,098
|
|
|
62
|
|
|
(587
|
)
|
Other, net
|
|
(294
|
)
|
|
(297
|
)
|
|
(232
|
)
|
Total income tax expense
|
|
$
|
6,637
|
|
|
$
|
27,678
|
|
|
$
|
30,366
|
|
At
December 31, 2016
,
2015
and
2014
, the Company's annual effective income tax rate on income from continuing operations was
(8.4)%
,
79.5%
and
214.8%
, respectively.
The Company’s international income from continuing operations before income taxes and equity income (loss) was
$20.5 million
and
$18.6 million
for the years ended December 31, 2016 and 2015, respectively. This includes the estimated forward loss provision related to the SBB contracts of
$45.1 million
in 2016 and non-recurring impairment charges of
$24.3 million
in 2015, on which no tax benefit was recognized because the losses occurred in entities where it is not more likely than not that the tax benefit will be realized. The Company’s differences in effective tax rates on international earnings and remittances for 2016 and 2015 was
$2.0 million
and
$5.1 million
, respectively. This decrease is primarily due to the change in the mix of earnings between jurisdictions. The above factors together with the non-recurring expiration of statute of limitations for uncertain tax positions in certain jurisdictions and the realization on beginning of year deferred tax assets in 2016 decreased the Company’s total international income tax expense, including discrete items, from
$23.3 million
in 2015 to
$16.3 million
in 2016.
The Company's loss from continuing operations before income taxes and equity income (loss) attributable to the U.S. was
$99.9 million
for the year ended December 31, 2016 compared to income from continuing operations before income taxes and equity (loss) attributable to the U.S. of
$16.2 million
for the year ended December 31, 2015. The loss in 2016 is due principally to the capital loss on the sale of the Company’s equity interest in Brand and the loss on early extinguishment of debt. A valuation allowance of
$16.1 million
was established for the deferred tax asset resulting from the capital loss on the sale of the Company's equity interest in Brand, because it is not more likely than not that the benefit will be realized in the future. However, the net operating loss created by the loss on early extinguishment of debt will be realized through a carryback to prior years with taxable income. The Company expects to have taxable income in future periods in the U.S.
The tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
(In thousands)
|
|
Asset
|
|
Liability
|
|
Asset
|
|
Liability
|
Depreciation and amortization
|
|
$
|
—
|
|
|
$
|
10,089
|
|
|
$
|
—
|
|
|
$
|
11,474
|
|
Expense accruals
|
|
23,300
|
|
|
—
|
|
|
24,538
|
|
|
—
|
|
Inventories
|
|
6,611
|
|
|
—
|
|
|
5,588
|
|
|
—
|
|
Provision for receivables
|
|
1,015
|
|
|
—
|
|
|
1,049
|
|
|
—
|
|
Deferred revenue
|
|
—
|
|
|
1,852
|
|
|
—
|
|
|
1,904
|
|
Operating loss carryforwards
|
|
80,178
|
|
|
—
|
|
|
77,151
|
|
|
—
|
|
Foreign tax credit carryforwards
|
|
26,347
|
|
|
—
|
|
|
19,199
|
|
|
—
|
|
Capital loss carryforwards
|
|
18,163
|
|
|
—
|
|
|
2,102
|
|
|
—
|
|
Pensions
|
|
74,506
|
|
|
—
|
|
|
66,675
|
|
|
—
|
|
Currency adjustments
|
|
17,597
|
|
|
—
|
|
|
28,589
|
|
|
—
|
|
Equity investment in Infrastructure strategic venture
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,688
|
|
Unit adjustment liability
|
|
—
|
|
|
—
|
|
|
29,491
|
|
|
—
|
|
Post-retirement benefits
|
|
760
|
|
|
—
|
|
|
869
|
|
|
—
|
|
Stock based compensation
|
|
5,812
|
|
|
—
|
|
|
4,790
|
|
|
—
|
|
Other
|
|
7,206
|
|
|
—
|
|
|
3,656
|
|
|
—
|
|
Subtotal
|
|
261,495
|
|
|
11,941
|
|
|
263,697
|
|
|
24,066
|
|
Valuation allowance
|
|
(146,097
|
)
|
|
—
|
|
|
(110,680
|
)
|
|
—
|
|
Total deferred income taxes
|
|
$
|
115,398
|
|
|
$
|
11,941
|
|
|
$
|
153,017
|
|
|
$
|
24,066
|
|
The deferred tax asset and liability balances recognized on the Consolidated Balance Sheets at
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
Other current assets
|
|
$
|
27,415
|
|
|
$
|
38,899
|
|
Other assets
|
|
78,944
|
|
|
102,914
|
|
Other current liabilities
|
|
281
|
|
|
767
|
|
Deferred income taxes
|
|
2,621
|
|
|
12,095
|
|
At
December 31, 2016
, the tax-effected amount of net operating loss carryforwards ("NOLs") totaled
$80.2 million
. Tax-effected NOLs from international operations are
$68.6 million
. Of that amount,
$56.7 million
can be carried forward indefinitely, and
$11.9 million
will expire at various times between 2017 and 2032. Tax-effected U.S. state NOLs are
$11.6 million
. Of that amount,
$1.4 million
expire at various times between 2017 and 2020,
$3.6 million
expire at various times between 2021 and 2025,
$3.3 million
expire at various times between 2026 and 2030, and
$3.3 million
expire at various times between 2031 and 2036. At
December 31, 2016
, the tax-effected amount of capital loss carryforwards totaled
$18.2
million which expire between 2018 and 2021.
The valuation allowances of
$146.1 million
and
$110.7 million
at
December 31, 2016
and
2015
, respectively, related principally to deferred tax assets for pension liabilities, NOLs, capital losses, foreign currency translation and foreign investment tax credits that are uncertain as to realizability. In 2016, the Company recorded a valuation allowance of
$16.1
million related to capital loss on sale of the Company's equity interest in Brand,
$13.5
million related to estimated forward loss provisions related to the SBB contracts, and current year pension adjustments of
$19.2 million
recorded through Accumulated other comprehensive loss. This was partially offset by the reduction from the effects of foreign currency translation adjustments and the decrease related to U.K. and France tax rate changes. In 2015, the Company recorded a net decrease in the valuation allowance of
$16.1
million related to pension adjustments recorded through Accumulated other comprehensive loss, the decrease from foreign currency translation in the amount of
$11.5
million and a
$6.3
million decrease related to a U.K. tax rate change. This was partially offset by a net increase of
$13.2
million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized.
The Company has not provided U.S. income taxes on certain non-U.S. subsidiaries' undistributed earnings as such amounts are indefinitely reinvested outside the U.S. At
December 31, 2016
and
2015
, such earnings were approximately
$528 million
and
$547 million
, respectively. It is not practical to determine the deferred income tax liability on these earnings if, in the future, they are remitted to the U.S. because the income tax liability to be incurred, if any, is dependent on circumstances existing when remittance occurs.
The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits in income tax expense. During 2016 and
2014
, the Company recognized an income tax benefit of
$1.7 million
and
$2.1 million
, respectively, for interest and penalties primarily due to the expiration of statutes of limitation and resolution of examinations. The Company did not recognize any income tax benefit for interest and penalties during 2015. The Company has accrued
$1.1 million
,
$2.8 million
and
$2.8 million
for the payment of interest and penalties at
December 31, 2016
,
2015
and
2014
respectively.
A reconciliation of the change in the unrecognized income tax benefits balance from
January 1, 2014
to
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Unrecognized
Income Tax
Benefits
|
|
Deferred
Income Tax
Benefits
|
|
Unrecognized
Income Tax
Benefits, Net of
Deferred Income
Tax Benefits
|
Balances, January 1, 2014
|
|
$
|
17,549
|
|
|
$
|
(198
|
)
|
|
$
|
17,351
|
|
Additions for tax positions related to the current year (includes currency translation adjustment)
|
|
288
|
|
|
(2
|
)
|
|
286
|
|
Additions for tax positions related to prior years (includes currency translation adjustment)
|
|
156
|
|
|
(55
|
)
|
|
101
|
|
Other reductions for tax positions related to prior years
|
|
(3,056
|
)
|
|
—
|
|
|
(3,056
|
)
|
Statutes of limitation expirations
|
|
(2,481
|
)
|
|
143
|
|
|
(2,338
|
)
|
Balance at December 31, 2014
|
|
12,456
|
|
|
(112
|
)
|
|
12,344
|
|
Additions for tax positions related to the current year (includes currency translation adjustment)
|
|
(483
|
)
|
|
(2
|
)
|
|
(485
|
)
|
Additions for tax positions related to prior years (includes currency translation adjustment)
|
|
1,249
|
|
|
(4
|
)
|
|
1,245
|
|
Other reductions for tax positions related to prior years
|
|
(7,846
|
)
|
|
—
|
|
|
(7,846
|
)
|
Statutes of limitation expirations
|
|
(173
|
)
|
|
59
|
|
|
(114
|
)
|
Settlements
|
|
(42
|
)
|
|
15
|
|
|
(27
|
)
|
Balance at December 31, 2015
|
|
5,161
|
|
|
(44
|
)
|
|
5,117
|
|
Additions for tax positions related to the current year (includes currency translation adjustment)
|
|
744
|
|
|
(1
|
)
|
|
743
|
|
Additions for tax positions related to prior years (includes currency translation adjustment)
|
|
358
|
|
|
(14
|
)
|
|
344
|
|
Other reductions for tax positions related to prior years
|
|
(837
|
)
|
|
—
|
|
|
(837
|
)
|
Statutes of limitation expirations
|
|
(817
|
)
|
|
27
|
|
|
(790
|
)
|
Settlements
|
|
(27
|
)
|
|
2
|
|
|
(25
|
)
|
Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2016
|
|
$
|
4,582
|
|
|
$
|
(30
|
)
|
|
$
|
4,552
|
|
Included in the other reductions for tax positions related to prior year for
2015
is
$7.8 million
resulting from the adjustment by a foreign tax authority as a result of tax audit. The unrecognized tax benefit was related to a net operating loss carryforward that carried a full valuation allowance. As a result, the related deferred tax asset was decreased by the same amount.
Within the next twelve months, it is reasonably possible that up to
$0.9 million
of unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.
The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. With few exceptions, the Company is no longer subject to U.S and international income tax examinations by tax authorities through 2010.
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 waste disposal sites. While each of these matters is subject to various uncertainties, it is probable that the Company will agree to make payments toward funding certain of these activities and it is possible that some of these matters will be decided unfavorably to the Company. The Company has evaluated its potential liability, and its financial exposure is dependent upon such factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the allocation of cost among potentially responsible parties, the years of remedial activity required and the remediation methods selected. The Company did not have any material accruals or record any material expenses related to environmental matters during the periods presented.
The Company evaluates its liability for future environmental remediation costs on a quarterly basis. Although actual costs to be incurred at identified sites in future periods may vary from the estimates (given inherent uncertainties in evaluating environmental exposures), the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with environmental matters in excess of the amounts accrued would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
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. A large number of the claims relate to value-added ("ICMS"), services and social security tax disputes. The largest proportion of the assessed amounts relate to ICMS claims filed by the State Revenue Authorities from the State of São Paulo, Brazil (the "SPRA"), encompassing the period from January 2002 to May 2005.
In October 2009, the Company received notification of the SPRA's final administrative decision regarding the levying of ICMS in the State of São Paulo in relation to services provided to a customer in the State between January 2004 and May 2005. As of
December 31, 2016
, the principal amount of the tax assessment from the SPRA with regard to this case is approximately
$2 million
, with penalty, interest and fees assessed to date increasing such amount by an additional
$23 million
. Any change in the aggregate amount since the Company's last Annual Report on Form 10-K, as revised on Form 8-K filed on June 1, 2015, is due to an increase in assessed interest and statutorily mandated legal fees for the year, as well as foreign currency translation.
Another ICMS tax case involving the SPRA refers to the tax period from January 2002 to December 2003, and is still pending at the administrative phase, where the aggregate amount assessed by the tax authorities in August 2005 was
$7.8 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
$1.8 million
, with penalty and interest assessed through that date increasing such amount by an additional
$5.9 million
. All such amounts include the effect of foreign currency translation.
The Company continues to believe that it is not probable it will incur a loss for these assessments by the SPRA. The Company also continues to believe that sufficient coverage for these claims exists as a result of the Company's customer's indemnification obligations and such customer's pledge of assets in connection with the October 2009 notice, as required by Brazilian law.
The Company intends to continue its practice of vigorously defending itself against these tax claims under various alternatives, including judicial appeal. The Company will continue to evaluate its potential liability with regard to these claims on a quarterly basis; however, it is not possible to predict the ultimate outcome of these tax-related disputes in Brazil. No loss provision has been recorded in the Company's consolidated financial statements for the disputes described above because the loss contingency is not deemed probable, and the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with Brazilian tax disputes would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Brazilian Labor Disputes
The Company is subject to collective bargaining and individual labor claims in Brazil through the Harsco Metals & Minerals 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.
The Company is continuing to review all known labor claims and as of
December 31, 2016
and
2015
, the Company has established reserves of
$7.9 million
and
$6.9 million
, respectively, on the Consolidated Balance Sheets for amounts considered to be probable and estimable. As the Company continues to evaluate these claims and takes actions to address them, the amount of established reserves may be impacted.
Customer Disputes
The Company, through its Harsco Metals & Minerals Segment, may, in the normal course of business, become involved in commercial disputes with subcontractors or customers.
During the first quarter of 2015, a rail grinder manufactured by the Company's Harsco Rail Segment and operated by a subcontractor caught fire, causing a customer to incur monetary damages. Depending on the cause of the fire and the extent of insurance coverage, the Company's results of operations and cash flows may be impacted in future periods.
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 these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Lima Refinery Litigation
On April 8, 2016, Lima Refining Company filed a lawsuit against the Company in the District Court of Harris County, Texas related to a January 2015 explosion at an oil refinery operated by Lima Refining Company. The action seeks approximately more than
$106 million
in property damages and approximately
$289 million
in lost profits and business interruption damages. The action alleges the explosion occurred because of a defect in a heat exchange cooler manufactured by Hammco in 2009, prior to the Company’s acquisition of Hammco in 2014. The Company is vigorously contesting the allegations against it both as to liability for the accident and the amount of the claimed damages. As a result, the Company believes the situation will not result in a probable loss. The Company has both an indemnity right from the sellers of Hammco and liability insurance coverage under various primary and excess policies that the Company believes will be available, if necessary, to cover substantially all of any such liability that might ultimately be incurred in the above action.
U.K. Health and Safety Executive Matter
In the third quarter of 2016, a subsidiary in the Company’s Harsco Metals & Minerals Segment, along with one of its customers, was named as a co-defendant in an action brought by the U.K. Health and Safety Executive in the U.K. Crown Court Sitting at Kingston-Upon Hull. The action relates to a fatal accident involving one of the customer’s employees in 2010. The action seeks to levy a fine against the Company. The Company believes that it is not responsible for the accident and is defending the action vigorously. A loss provision related to this action has not been recorded in the Company’s consolidated financial statements, because the Company believes that a loss is not probable. However, if the outcome of the proceedings is unfavorable, the Company does not believe that it would have a material adverse effect on the Company's financial condition, result 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
December 31, 2016
, there were
17,090
pending asbestos personal injury actions filed against the Company. Of those actions,
16,757
were filed in the New York Supreme Court (New York County),
111
were filed in other New York State Supreme Court Counties and
222
were filed in courts located in other states.
The complaints in most of those actions generally follow a form that contains a standard damages demand of
$20 million
or
$25 million
, regardless of the individual plaintiff's alleged medical condition, and without identifying any specific Company product.
At
December 31, 2016
,
16,742
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
15
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 Company believes that a substantial portion of the costs and expenses of the asbestos actions will be paid by the Company’s insurers.
In view of the persistence of asbestos litigation in the U.S., the Company expects to continue to receive additional claims in the future. The Company intends to continue its practice of vigorously defending these claims and cases. At
December 31, 2016
, the Company has obtained dismissal in
27,903
cases by stipulation or summary judgment prior to trial.
It is not possible to predict the ultimate outcome of asbestos-related actions in the U.S. due to the unpredictable nature of this litigation, and no loss provision has been recorded in the Company's consolidated financial statements because a loss contingency is not deemed probable or estimable. Despite this uncertainty, and although results of operations and cash flows for a given period could be adversely affected by asbestos-related actions, the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with asbestos litigation would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by established reserves, and, if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Insurance liabilities are recorded when it is probable that a liability has been incurred for a particular event and the amount of loss associated with the event can be reasonably estimated. Insurance reserves have been estimated based primarily upon actuarial calculations and reflect the undiscounted estimated liabilities for ultimate losses, including claims incurred but not reported. Inherent in these estimates are assumptions that are based on the Company's history of claims and losses, a detailed analysis of existing claims with respect to potential value, and current legal and legislative trends. If actual claims differ from those projected by management, changes (either increases or decreases) to insurance reserves may be required and would be recorded through income in the period the change was determined. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Insurance claim receivables are included in Other receivables on the Consolidated Balance Sheets. See Note 1, Summary of Significant Accounting Policies, for additional information.
13. Capital Stock
The authorized capital stock of the Company consists of
150,000,000
shares of common stock and
4,000,000
shares of preferred stock, both having a par value of
$1.25
per share. The preferred stock is issuable in series with terms as fixed by the Board of Directors (the "Board"). No preferred stock has been issued. Under the Company's Preferred Stock Purchase Rights Agreement (the "Agreement"), the Board authorized and declared a dividend distribution of
one
right for each share of common stock outstanding on the record date. The rights may only be exercised if, among other things and with certain exceptions, a person or group has acquired
15%
or more of the Company's common stock without the prior approval of the Board. Each right entitles the holder to purchase
1/100th
share of Harsco Series A Junior Participating Cumulative Preferred Stock at an exercise price of
$230
. Once the rights become exercisable, the holder of a right will be entitled, upon payment of the exercise price, to purchase a number of shares of common stock calculated to have a value of
two
times the exercise price of the right. The rights expire on
October 9, 2017
, do not have voting power, and may be redeemed by the Company at a price of
$0.001
per right at any time until the
10
th business day following public announcement that a person or group has accumulated 15% or more of the Company's common stock. The Agreement also includes an exchange feature. At
December 31, 2016
and
2015
,
801,750
and
800,944
shares, respectively, of
$1.25
par value preferred stock were reserved for issuance upon exercise of the rights.
The Company's share repurchase program expired on January 31, 2015. The Board had previously authorized the repurchase of shares of common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Authorized for Purchase
January 1
|
|
Shares
Purchased
|
|
Plan Expiration
|
|
Shares
Authorized for
Purchase
December 31
|
2014
|
|
2,000,000
|
|
|
150,000
|
|
|
—
|
|
|
1,850,000
|
|
2015
|
|
1,850,000
|
|
|
596,632
|
|
|
1,253,368
|
|
|
—
|
|
The following table summarizes the Company's common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Issued
|
|
Treasury
Shares (a)
|
|
Outstanding
Shares
|
Outstanding, January 1, 2014
|
|
112,198,693
|
|
|
31,519,768
|
|
|
80,678,925
|
|
Issuance of vested restricted stock units
|
|
65,851
|
|
|
4,418
|
|
|
61,433
|
|
Stock appreciation rights exercised
|
|
9,213
|
|
|
2,985
|
|
|
6,228
|
|
Other stock grants
|
|
83,591
|
|
|
20,327
|
|
|
63,264
|
|
Treasury shares purchased
|
|
—
|
|
|
150,000
|
|
|
(150,000
|
)
|
Outstanding, December 31, 2014
|
|
112,357,348
|
|
|
31,697,498
|
|
|
80,659,850
|
|
Issuance of vested restricted stock units
|
|
47,954
|
|
|
16,807
|
|
|
31,147
|
|
Treasury shares purchased
|
|
—
|
|
|
596,632
|
|
|
(596,632
|
)
|
Outstanding, December 31, 2015
|
|
112,405,302
|
|
|
32,310,937
|
|
|
80,094,365
|
|
Issuance of vested restricted stock units
|
|
94,572
|
|
|
13,974
|
|
|
80,598
|
|
Outstanding, December 31, 2016
|
|
112,499,874
|
|
|
32,324,911
|
|
|
80,174,963
|
|
|
|
(a)
|
The Company repurchases shares in connection with the issuance of shares under stock-based compensation programs and in accordance with Board authorized share repurchase programs.
|
The following is a reconciliation of the average shares of common stock used to compute basic earnings per common share to the shares used to compute diluted earnings per common share as shown on the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2016
|
|
2015
|
|
2014
|
Income (loss) from continuing operations attributable to Harsco Corporation common stockholders
|
|
$
|
(86,336
|
)
|
|
$
|
7,168
|
|
|
$
|
(22,281
|
)
|
|
|
|
|
|
|
|
Weighted-average shares outstanding—basic
|
|
80,333
|
|
|
80,234
|
|
|
80,884
|
|
Dilutive effect of stock-based compensation
|
|
—
|
|
|
131
|
|
|
—
|
|
Weighted-average shares outstanding—diluted
|
|
80,333
|
|
|
80,365
|
|
|
80,884
|
|
Income (loss) from continuing operations per common share, attributable to Harsco Corporation common stockholders:
|
Basic
|
|
$
|
(1.07
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.07
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.28
|
)
|
The following average outstanding stock-based compensation units were not included in the computation of diluted earnings per share because the effect was antidilutive:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Restricted stock units
|
|
810
|
|
|
—
|
|
|
301
|
|
Stock options
|
|
89
|
|
|
98
|
|
|
188
|
|
Stock appreciation rights
|
|
1,458
|
|
|
1,142
|
|
|
912
|
|
Performance share units
|
|
684
|
|
|
278
|
|
|
—
|
|
14. Stock-Based Compensation
The 2013 Equity and Incentive Compensation Plan (the "2013 Plan") authorizes the issuance of up to
6,800,000
shares of the Company's common stock for use in paying incentive compensation awards in the form of stock options or other equity awards such as restricted stock, restricted stock units ("RSUs"), stock appreciation rights ("SARs"), or performance share units ("PSUs"). Of the
6,800,000
shares authorized, a maximum of
3,400,000
shares may be issued for awards other than option rights or SARs, as defined in the 2013 Plan. The 2016 Non-Employee Directors' Long-Term Equity Compensation Plan (the "2016 Plan") authorizes the issuance of up to
400,000
shares of the Company's common stock for equity awards. Both plans have been approved by the Company's stockholders. At
December 31, 2016
, there were
3,651,413
shares available for granting equity awards under the 2013 Plan, of which
1,779,549
shares were available for awards other than option rights or SARs. At
December 31, 2016
, there were
290,002
shares available for granting equity awards under the 2016 Plan.
Restricted Stock Units
The Company's Board approves the granting of performance-based RSUs as the long-term equity component of director, officer and certain key employee compensation. The RSUs require no payment from the recipient and compensation cost is measured based on the market price of the Company's common stock on the grant date and is generally recorded over the vesting period. RSUs granted to officers and certain key employees in 2012, and prior, vested on a pro-rata basis over a
three
-year period or upon obtainment of specified retirement criteria. RSUs granted to officers and certain key employees in 2013, either "cliff" vest at the end of
three years
or upon obtainment of specified retirement criteria. RSUs granted to officers and certain key employees in 2014 and 2015, either "cliff" vest at the end of
three years
, upon obtainment of specified retirement or years of service criteria. RSUs granted to officers and certain key employees in 2016 either vest on a pro-rata basis over three years or upon obtainment of specified retirement or years of service criteria. Upon vesting, each RSU is exchanged for an equal number of shares of the Company's common stock. The vesting period for RSUs granted to non-employee directors is
one
year, and each RSU is exchanged for an equal number of shares of the Company's common stock following the termination of the participant's service as a director. RSUs do not have an option for cash payment.
The following table summarizes RSUs issued and the compensation expense recorded for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs (a)
|
|
Weighted Average Fair Value
|
|
Expense
|
(Dollars in thousands, except per unit)
|
|
|
|
2016
|
|
2015
|
|
2014
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
46,287
|
|
|
$
|
20.60
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
318
|
|
2014
|
|
36,840
|
|
|
$
|
24.80
|
|
|
—
|
|
|
311
|
|
|
602
|
|
2015
|
|
59,985
|
|
|
$
|
15.69
|
|
|
314
|
|
|
627
|
|
|
—
|
|
2016
|
|
109,998
|
|
|
$
|
7.00
|
|
|
513
|
|
|
—
|
|
|
—
|
|
Employees:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
17,250
|
|
|
$
|
23.55
|
|
|
—
|
|
|
—
|
|
|
3
|
|
2012
|
|
141,486
|
|
|
$
|
18.75
|
|
|
—
|
|
|
(71
|
)
|
(b)
|
151
|
|
2013
|
|
170,582
|
|
|
$
|
20.63
|
|
|
66
|
|
|
87
|
|
|
325
|
|
2014
|
|
190,832
|
|
|
$
|
25.21
|
|
|
669
|
|
|
504
|
|
|
1,114
|
|
2015
|
|
239,679
|
|
|
$
|
16.53
|
|
|
880
|
|
|
919
|
|
|
—
|
|
2016
|
|
536,773
|
|
|
$
|
7.09
|
|
|
995
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
|
|
|
|
|
$
|
3,437
|
|
|
$
|
2,377
|
|
|
$
|
2,513
|
|
|
|
(a)
|
Represents number of awards originally issued.
|
|
|
(b)
|
Represents the impact of forfeitures during 2015.
|
RSU activity for the year ended
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Grant-Date
Fair Value
|
Non-vested at December 31, 2015
|
|
438,358
|
|
|
$
|
19.12
|
|
Granted
|
|
646,771
|
|
|
$
|
7.08
|
|
Vested
|
|
(102,256
|
)
|
|
$
|
17.65
|
|
Forfeited
|
|
(55,791
|
)
|
|
$
|
13.90
|
|
Non-vested at December 31, 2016
|
|
927,082
|
|
|
$
|
11.19
|
|
At
December 31, 2016
, the total unrecognized compensation cost related to non-vested RSUs was
$4.0 million
, which will be recognized over a weighted-average period of
1.8
years. There was a
$1.1 million
decrease in excess tax benefits from RSUs recognized in 2016. There was
no
change in excess tax benefits from RSUs recognized in 2015 and 2014.
Stock Appreciation Rights
The Company may grant SARs to officers and certain key employees under the 2013 Plan. The SARs generally vest on a pro-rata basis from
one
to
five
years from the grant date or upon specified retirement or years of service criteria, and expire no later than
ten
years after the grant date. The exercise price of the SARs is the fair value on the grant date. Upon exercise, shares of Company's common stock are issued based on the increase in the fair value of the Company's common stock over the exercise price of the SAR. SARs do not have an option for cash payment.
During 2014, the Company issued SARs covering
51,900
shares in April,
255,090
shares in May,
31,405
shares in July,
84,290
shares in August,
15,808
shares in September and
12,401
shares in November under the 2013 Plan. During 2015, the Company issued SARs covering
532,615
shares in May under the 2013 Plan. During 2016, the Company issued SARS covering
554,719
shares in May, and
21,686
shares in November under the 2013 Plan.
The fair value of each SAR grant was estimated on the grant date using a Black-Scholes pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free Interest rate
|
|
Dividend Yield
|
|
Expected Life (Years)
|
|
Volatility
|
|
SAR Grant Price
|
|
Fair Value of SAR
|
May 2013 Grant
|
|
1.17
|
%
|
|
3.61
|
%
|
|
6.5
|
|
44.1
|
%
|
|
$
|
22.70
|
|
|
$
|
6.86
|
|
June 2013 Grant
|
|
1.41
|
%
|
|
3.56
|
%
|
|
6.5
|
|
44.1
|
%
|
|
$
|
23.03
|
|
|
$
|
7.07
|
|
November 2013 Grant
|
|
1.91
|
%
|
|
3.13
|
%
|
|
6.5
|
|
43.8
|
%
|
|
$
|
26.22
|
|
|
$
|
8.60
|
|
April 2014 Grant
|
|
1.98
|
%
|
|
3.53
|
%
|
|
6.0
|
|
44.3
|
%
|
|
$
|
23.25
|
|
|
$
|
7.25
|
|
May 2014 Grant (1st)
|
|
1.90
|
%
|
|
3.16
|
%
|
|
6.0
|
|
43.2
|
%
|
|
$
|
25.93
|
|
|
$
|
8.16
|
|
May 2014 Grant (2nd)
|
|
1.82
|
%
|
|
3.05
|
%
|
|
6.0
|
|
42.8
|
%
|
|
$
|
26.92
|
|
|
$
|
8.47
|
|
July 2014 Grant
|
|
2.00
|
%
|
|
3.24
|
%
|
|
6.0
|
|
41.2
|
%
|
|
$
|
25.27
|
|
|
$
|
7.55
|
|
August 2014 Grant
|
|
1.92
|
%
|
|
3.27
|
%
|
|
6.0
|
|
41.2
|
%
|
|
$
|
25.11
|
|
|
$
|
7.46
|
|
September 2014 Grant
|
|
2.03
|
%
|
|
3.50
|
%
|
|
6.0
|
|
40.6
|
%
|
|
$
|
23.43
|
|
|
$
|
6.72
|
|
November 2014 Grant
|
|
1.78
|
%
|
|
4.00
|
%
|
|
6.0
|
|
38.6
|
%
|
|
$
|
20.48
|
|
|
$
|
5.17
|
|
May 2015 Grant
|
|
1.70
|
%
|
|
4.96
|
%
|
|
6.0
|
|
35.8
|
%
|
|
$
|
16.53
|
|
|
$
|
3.39
|
|
May 2016 Grant
|
|
1.39
|
%
|
|
—
|
%
|
|
6.0
|
|
42.1
|
%
|
|
$
|
7.00
|
|
|
$
|
2.93
|
|
November 2016 Grant
|
|
1.74
|
%
|
|
—
|
%
|
|
6.0
|
|
43.8
|
%
|
|
$
|
12.25
|
|
|
$
|
5.38
|
|
SARs activity for the years ended
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Aggregate Intrinsic Value (in millions) (c)
|
Outstanding, December 31, 2015
|
|
1,100,410
|
|
|
$
|
20.55
|
|
|
$
|
—
|
|
Granted
|
|
576,405
|
|
|
$
|
7.20
|
|
|
|
Forfeited/Expired
|
|
(140,942
|
)
|
|
$
|
17.58
|
|
|
|
Outstanding, December 31, 2016
|
|
1,535,873
|
|
|
$
|
15.81
|
|
|
$
|
3.4
|
|
|
|
(c)
|
Intrinsic value is defined as the difference between the current market value and the exercise price, for those SARs where the market price exceeds the exercise price.
|
No
SARs were exercised in
2016
and
2015
. The total intrinsic value of SARs exercised in
2014
was
$0.2 million
.
The following table summarizes information concerning outstanding and exercisable SARs at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs Outstanding
|
|
SARs Exercisable
|
Range of exercisable prices
|
|
Vested
|
|
Non-vested
|
|
Weighted-Average Exercise Price per Share
|
|
Weighted-Average Remaining Contractual Life in Years
|
|
Number Exercisable
|
|
Weighted-Average Exercise Price per Share
|
$7.00 - $12.25
|
|
—
|
|
|
538,862
|
|
|
$
|
7.21
|
|
|
9.36
|
|
—
|
|
|
$
|
—
|
|
$16.53 - $22.70
|
|
274,632
|
|
|
414,447
|
|
|
$
|
18.44
|
|
|
7.56
|
|
274,632
|
|
|
$
|
18.53
|
|
$23.03 - $26.92
|
|
246,717
|
|
|
61,215
|
|
|
$
|
25.00
|
|
|
7.41
|
|
246,717
|
|
|
$
|
25.18
|
|
|
|
521,349
|
|
|
1,014,524
|
|
|
$
|
15.81
|
|
|
7.81
|
|
521,349
|
|
|
$
|
21.68
|
|
Total compensation expense related to SARs was
$1.7 million
,
$1.2 million
and
$1.0 million
for the years ended
December 31, 2016
,
2015
and 2014, respectively. At
December 31, 2016
, outstanding SARs have a weighted-average remaining contractual life of
7.81
years and
$3.4 million
of intrinsic value. Vested and currently exercisable SARs have a weighted-average remaining contractual life of
7.50
years and
no
aggregate intrinsic value as the exercise price for all vested and exercisable
SARs exceeds the current market value. At
December 31, 2016
, total unrecognized compensation expense related to non-vested SARs was
$2.5 million
, which is expected to be recognized over a weighted average period of
1.7
years.
Weighted-average grant date fair value of non-vested SARs for the years ended
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested shares, December 31, 2015
|
|
852,099
|
|
|
$
|
5.04
|
|
Granted
|
|
576,405
|
|
|
$
|
3.02
|
|
Vested
|
|
(328,965
|
)
|
|
$
|
5.40
|
|
Forfeited
|
|
(85,015
|
)
|
|
$
|
4.28
|
|
Non-vested shares, December 31, 2016
|
|
1,014,524
|
|
|
$
|
3.84
|
|
Performance Share Units
Beginning in 2014, the Company granted PSUs to officers and certain key employees that may be earned based on the Company's total shareholder return over the
three
-year performance period. PSUs are paid out at the end of each performance period based on the Company’s performance, which is measured by determining the percentile rank of the total shareholder return of the Company's common stock in relation to the total shareholder return of a specific peer group of companies. For PSUs issued in 2014 and 2015, the peer group of companies utilized was the S&P Midcap 400 Index. For PSUs issued in 2016, the peer group of companies utilized is the S&P 600 Industrial Index. The payment of PSUs following the performance period will be based in accordance with the scale set forth in the PSU agreements, and may range from
0%
to
200%
of the initial grant. PSUs do not have an option for cash payment.
During the year ended December 31, 2014, the Company granted
15,700
shares in April,
82,526
shares in May,
11,487
shares in July,
26,550
shares in August,
4,980
shares in September and
3,906
shares in November under the 2013 Plan. During the year ended December 31, 2015, the Company granted
237,063
shares in May under the 2013 Plan. During the year ended December 31, 2016, the Company granted
527,249
shares in May and
9,524
shares in November under the 2013 plan. The fair value of PSUs granted was estimated on the grant date using a Monte Carlo pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free Interest rate
|
|
Dividend Yield
|
|
Expected Life (Years)
|
|
Volatility
|
|
Fair Value of PSU
|
April 2014 Grant
|
|
0.75
|
%
|
|
—
|
%
|
|
2.73
|
|
34.3
|
%
|
|
$
|
18.00
|
|
May 2014 Grant (1st)
|
|
0.70
|
%
|
|
—
|
%
|
|
2.65
|
|
31.8
|
%
|
|
$
|
25.26
|
|
May 2014 Grant (2nd)
|
|
0.63
|
%
|
|
—
|
%
|
|
2.61
|
|
30.1
|
%
|
|
$
|
27.53
|
|
July 2014 Grant
|
|
0.74
|
%
|
|
—
|
%
|
|
2.42
|
|
26.9
|
%
|
|
$
|
22.31
|
|
August 2014 Grant
|
|
0.67
|
%
|
|
—
|
%
|
|
2.42
|
|
26.9
|
%
|
|
$
|
21.86
|
|
September 2014 Grant
|
|
0.72
|
%
|
|
—
|
%
|
|
2.29
|
|
25.7
|
%
|
|
$
|
15.26
|
|
November 2014 Grant
|
|
0.55
|
%
|
|
—
|
%
|
|
2.10
|
|
26.3
|
%
|
|
$
|
7.42
|
|
May 2015 Grant
|
|
0.83
|
%
|
|
—
|
%
|
|
2.65
|
|
28.5
|
%
|
|
$
|
14.48
|
|
May 2016 Grant
|
|
0.84
|
%
|
|
—
|
%
|
|
2.65
|
|
33.3
|
%
|
|
$
|
7.19
|
|
November 2016 Grant
|
|
0.96
|
%
|
|
—
|
%
|
|
2.14
|
|
35.2
|
%
|
|
$
|
17.84
|
|
Total compensation expense related to PSUs was
$2.5 million
,
$1.4 million
and
$0.9 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. At
December 31, 2016
, total unrecognized compensation expense related to non-vested PSUs was
$3.3 million
, which is expected to be recognized over a weighted average period of
1.7
years.
A summary of the Company's non-vested PSU activity during the years ending
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested shares, December 31, 2015
|
|
315,212
|
|
|
$
|
16.94
|
|
Granted
|
|
536,773
|
|
|
$
|
7.38
|
|
Forfeited
|
|
(63,217
|
)
|
|
$
|
12.78
|
|
Cancellations
(d)
|
|
(96,206
|
)
|
|
$
|
21.69
|
|
Non-vested shares, December 31, 2016
|
|
692,562
|
|
|
$
|
9.25
|
|
|
|
(d)
|
The measurement period for PSUs issued in 2014 ended on December 31, 2016. The Company's total shareholder return compared to the peer group of companies resulted in no shares being issued because no PSUs were earned.
|
Stock Options
The Company may grant incentive stock options and nonqualified stock options to officers, certain key employees and non-employee directors under the plans noted above. The stock options would generally vest
three
years from the grant date, which is the date the Board approved the grants, and expire no later than
seven
years after the grant date. The exercise price of the stock option would be fair value on the grant date. Upon exercise, a new share of Company common stock is issued for each stock option. Stock option activity for the years ended
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Exercise Price
|
|
Aggregate
Intrinsic Value
(in millions)(e)
|
Outstanding, December 31, 2015
|
|
90,000
|
|
|
$
|
31.75
|
|
|
$
|
—
|
|
Forfeited/Expired
|
|
(35,000
|
)
|
|
$
|
31.75
|
|
|
$
|
—
|
|
Outstanding, December 31, 2016
|
|
55,000
|
|
|
$
|
31.75
|
|
|
$
|
—
|
|
|
|
(e)
|
Intrinsic value is defined as the difference between the current market value and the exercise price, for those options where the market price exceeds the exercise price.
|
There was
no
compensation expense related to stock options in 2016 and 2015. Compensation expense related to stock options totaled less than
$0.1 million
in 2014. At
December 31, 2016
and
2015
, there was
no
unrecognized compensation expense related to non-vested stock options. There were
no
stock options exercised and
no
net cash proceeds from the exercise of stock options in 2016, 2015 and 2014.
The following table summarizes information concerning outstanding and exercisable options at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
Range of Exercisable
Prices
|
|
Vested
|
|
Non-vested
|
|
Weighted Average
Exercise
Price Per
Share
|
|
Weighted Average
Remaining
Contractual
Life in
Years
|
|
Number
Exercisable
|
|
Weighted Average
Exercise
Price Per
Share
|
$31.75 - $31.75
|
|
55,000
|
|
|
—
|
|
|
$
|
31.75
|
|
|
1.1
|
|
55,000
|
|
|
$
|
31.75
|
|
During 2014, the Company issued
27,672
common shares to the Interim Chief Executive Officer as part of his compensation agreement. These shares vested immediately and were not subject to any holding period restrictions. The fair value of these other stock grants were based on the market price of the Company's stock at the grant date. Expense recognized in 2014 for these other stock grants totaled
$0.7 million
. In addition,
55,919
common shares were issued to other officers and key employees to settle previous fully-vested liability-based long-term incentive award programs.
15. Financial Instruments
Off-Balance Sheet Risk
As collateral for the Company's performance and to insurers, the Company is contingently liable under standby letters of credit, bonds and bank guarantees in the amounts of
$273.1 million
,
$232.5 million
and
$269.4 million
at
December 31, 2016
,
2015
and
2014
, respectively. The increase at December 31, 2016 primarily relates to letters of credit and issuance of surety bonds related to the SBB rail order in the Harsco Rail Segment. The decrease at December 31, 2015 primarily relates to the expiration of several guarantees and lower negotiated amounts for certain insurance letters of credit. These standby letters of credit, bonds and bank guarantees are generally in force for up to
3 years
. Certain issues have no scheduled expiration date. The Company pays fees to various banks and insurance companies that range from
0.4%
to
3.5%
per annum of the instrument's face value. If the Company were required to obtain replacement standby letters of credit, bonds and bank guarantees at
December 31, 2016
for those currently outstanding, it is the Company's opinion that the replacement costs would be within the present fee structure.
The Company has currency exposures in approximately
30
countries. The Company's primary foreign currency exposures during
2016
were in the European Union, the U.K. and Brazil.
Off-Balance Sheet Risk—Third-Party Guarantees
During June 2014, the Company provided a guarantee to Brand as part of the net working capital settlement related to the Infrastructure Transaction, for certain matters occurring prior to closing. The remaining term of this guarantee is
four
years at
December 31, 2016
. The maximum potential amount of future payments related to this guarantee is approximately
$3 million
at
December 31, 2016
. There is no recognition of this potential future payment in the consolidated financial statements as the Company believes the potential for making this payment is remote.
The Company provided an environmental indemnification for property from a lease that terminated in 2006. The term of this guarantee is indefinite, and the Company would be required to perform under the guarantee only if an environmental matter was discovered on the property relating to the time the Company leased the property. The Company is not aware of any environmental issues related to this property. The maximum potential amount of future payments (undiscounted) related to this guarantee is estimated to be
$3.0 million
at
December 31, 2016
,
2015
and
2014
. There is no recognition of this potential future payment in the consolidated financial statements as the Company believes the potential for making this payment is remote.
Any liabilities related to the Company's obligation to stand ready to act on third-party guarantees are included, Other current liabilities or Other liabilities (as appropriate), on the Consolidated Balance Sheets. Any recognition of these liabilities did not have a material impact on the Company's financial position or results of operations for
2016
,
2015
or
2014
.
In the normal course of business, legal indemnifications are provided related primarily to the performance of the Company's products and services and patent and trademark infringement of the products and services sold. These indemnifications generally relate to the performance (regarding function, not price) of the respective products or services and therefore no liability is recognized related to the fair value of such guarantees.
Derivative Instruments and Hedging Activities
The Company uses derivative instruments, including foreign currency exchange forward contracts and cross-currency interest rate swaps ("CCIRs"), to manage certain foreign currency and interest rate exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for trading or speculative purposes.
All derivative instruments are recorded on the Consolidated Balance Sheets at fair value. 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 or forecasted commodity purchases 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 Accumulated other comprehensive loss, a separate component of equity, and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. Generally, at
December 31, 2016
, deferred gains and losses related to asset purchases are reclassified to earnings over
10
to
15 years
from the balance sheet date and those related to revenue are deferred until the revenue is recognized. The ineffective portion of all hedges, if any, is recognized currently in earnings.
The fair value of outstanding derivative contracts recorded as assets and liabilities on the Consolidated Balance Sheets at
December 31, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
Foreign currency exchange forward contracts
|
|
Other current assets
|
|
$
|
473
|
|
|
Other current liabilities
|
|
$
|
166
|
|
Cross-currency interest rate swaps
|
|
Other current assets
|
|
514
|
|
|
|
|
—
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
987
|
|
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
:
|
Foreign currency exchange forward contracts
|
|
Other current assets
|
|
$
|
4,459
|
|
|
Other current liabilities
|
|
$
|
3,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
Foreign currency exchange forward contracts
|
|
Other current assets
|
|
$
|
1,640
|
|
|
|
|
$
|
—
|
|
Cross-currency interest rate swaps
|
|
Other assets
|
|
15,417
|
|
|
|
|
—
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
17,057
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
Foreign currency exchange forward contracts
|
|
Other current assets
|
|
$
|
4,188
|
|
|
Other current liabilities
|
|
$
|
1,738
|
|
All of the Company's derivatives are recorded on the Consolidated Balance Sheets at gross amounts and not offset. All of the Company's CCIRs and certain foreign currency exchange forward contracts are transacted under International Swaps and Derivatives Association ("ISDA") documentation. Each ISDA master agreement permits the net settlement of amounts owed in the event of default. The Company's derivative assets and liabilities subject to enforceable master netting arrangements did not result in a net asset or net liability at either
December 31, 2016
or
2015
.
The effect of derivative instruments on the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income (Loss) during
2016
,
2015
and
2014
was as follows:
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amount of
Gain (Loss)
Recognized in
Other
Comprehensive
Income
("OCI") on
Derivative—Effective
Portion
|
|
Location of Gain
(Loss) Reclassified
from Accumulated
OCI into Income—Effective
Portion
|
Amount of
Gain (Loss)
Reclassified
from
Accumulated
OCI into
Income—Effective
Portion
|
|
Location of Gain
(Loss) Recognized
in Income on
Derivative—Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing
|
Amount of
Gain (Loss)
Recognized
in Income
on Derivative—Ineffective
Portion and
Amount
Excluded
from Effectiveness
Testing
|
|
Twelve Months Ended December 31, 2016:
|
Foreign currency exchange forward contracts
|
|
$
|
1,884
|
|
|
Cost of services and products sold
|
$
|
410
|
|
|
|
$
|
—
|
|
|
Cross-currency interest rate swaps
|
|
(1,549
|
)
|
|
|
—
|
|
|
Cost of services and products sold
|
4,042
|
|
(a)
|
|
|
$
|
335
|
|
|
|
$
|
410
|
|
|
|
$
|
4,042
|
|
|
Twelve Months Ended December 31, 2015:
|
Foreign currency exchange forward contracts
|
|
$
|
2,532
|
|
|
Cost of services and products sold
|
$
|
53
|
|
|
|
$
|
—
|
|
|
Cross-currency interest rate swaps
|
|
9,012
|
|
|
|
—
|
|
|
Cost of services and products sold
|
30,359
|
|
(a)
|
|
|
$
|
11,544
|
|
|
|
$
|
53
|
|
|
|
$
|
30,359
|
|
|
Twelve Months Ended December 31, 2014:
|
Foreign currency exchange forward contracts
|
|
$
|
358
|
|
|
Cost of services and products sold
|
$
|
4
|
|
|
|
$
|
—
|
|
|
Cross-currency interest rate swaps
|
|
(1,977
|
)
|
|
|
—
|
|
|
Cost of services and products sold
|
39,823
|
|
(a)
|
|
|
$
|
(1,619
|
)
|
|
|
$
|
4
|
|
|
|
$
|
39,823
|
|
|
|
|
(a)
|
These gains (losses) offset foreign currency fluctuation effects on the debt principal.
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss Recognized in Income on Derivative
|
|
Amount of Gain (Loss) Recognized in Income on Derivative for the Twelve Months Ended December 31(b)
|
(In thousands)
|
|
|
2016
|
|
2015
|
|
2014
|
Foreign currency exchange forward contracts
|
|
Cost of services and products sold
|
|
$
|
15,875
|
|
|
$
|
(158
|
)
|
|
$
|
(2,307
|
)
|
|
|
(b)
|
These gains (losses) offset amounts recognized in cost of service and products sold principally as a result of intercompany or third-party foreign currency exposures.
|
Foreign Currency Exchange Forward Contracts
The Company conducts business in multiple currencies and, accordingly, is subject to the inherent risks associated with foreign exchange rate movements. The financial position and results of operations of substantially all of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Foreign currency-denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods. The aggregate effects of translating the balance sheets of these subsidiaries are deferred and recorded in Accumulated other comprehensive loss, which is a separate component of equity.
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.
The following tables summarize, by major currency, the contractual amounts of the Company's foreign currency exchange forward contracts in U.S. dollars at
December 31, 2016
and
2015
. The "Buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies. 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.
Contracted Amounts of Foreign Currency Exchange Forward Contracts Outstanding at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Type
|
|
U.S. Dollar
Equivalent
|
|
Maturity
|
|
Recognized
Gain (Loss)
|
British pounds sterling
|
|
Sell
|
|
$
|
55,120
|
|
|
January 2017
|
|
$
|
(228
|
)
|
British pounds sterling
|
|
Buy
|
|
827
|
|
|
March 2017
|
|
(14
|
)
|
Euros
|
|
Sell
|
|
326,797
|
|
|
January 2017 through December 2017
|
|
628
|
|
Euros
|
|
Buy
|
|
171,578
|
|
|
January 2017 through January 2018
|
|
(468
|
)
|
Other currencies
|
|
Sell
|
|
43,455
|
|
|
January 2017 through September 2017
|
|
1,477
|
|
Other currencies
|
|
Buy
|
|
3,106
|
|
|
March 2017
|
|
(1
|
)
|
Total
|
|
|
|
$
|
600,883
|
|
|
|
|
$
|
1,394
|
|
Contracted Amounts of Foreign Currency Exchange Forward Contracts Outstanding at
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Type
|
|
U.S. Dollar
Equivalent
|
|
Maturity
|
|
Recognized
Gain (Loss)
|
British pounds sterling
|
|
Sell
|
|
$
|
43,511
|
|
|
January 2016
|
|
$
|
822
|
|
British pounds sterling
|
|
Buy
|
|
2,062
|
|
|
January 2016
|
|
(54
|
)
|
Euros
|
|
Sell
|
|
336,397
|
|
|
January 2016 through December 2016
|
|
547
|
|
Euros
|
|
Buy
|
|
167,037
|
|
|
January 2016 through August 2016
|
|
2,497
|
|
Other currencies
|
|
Sell
|
|
35,426
|
|
|
January 2016 through March 2016
|
|
316
|
|
Other currencies
|
|
Buy
|
|
7,981
|
|
|
January 2016
|
|
(38
|
)
|
Total
|
|
|
|
$
|
592,414
|
|
|
|
|
$
|
4,090
|
|
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 losses of
$37.5 million
, pre-tax net gains of
$2.7 million
and pre-tax net gains of
$22.6 million
related to hedges of net investments during
2016
,
2015
and
2014
, respectively, in Accumulated other comprehensive loss.
Cross-Currency Interest Rate Swaps
The Company uses 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. The CCIRs are recorded on the Consolidated Balance Sheets at fair value, with changes in value attributed to the effect of the swaps' interest spread and changes in the credit worthiness of the counter-parties recorded in Accumulated other comprehensive loss. Changes in value attributed to the effect of foreign currency fluctuations are recorded on the Consolidated Statements of Operations and offset currency fluctuation effects on the debt principal. The following table indicates the contractual amounts of the Company's CCIRs:
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Amounts
|
|
Interest Rates
|
(In millions)
|
|
|
Receive
|
|
Pay
|
Maturing 2017
|
|
$
|
2.7
|
|
|
Floating U.S. dollar rate
|
|
Fixed rupee rate
|
During March 2016, the Company effected the early termination of the British pound sterling CCIR with an original maturity date of 2020. The Company received
$16.6 million
in cash related to this termination. During August 2015, the Company effected the early termination of the euro CCIR with an original maturity date of 2018. The Company received
$75.1 million
in cash related to this termination. Euro denominated foreign currency exchange forward contracts were entered into later in 2015 that provide similar protection from changes in foreign exchange rates to the terminated CCIR contract. There was no gain or loss recorded on these terminations as any change in value attributable to the effect of foreign currency translation was previously recognized on the Consolidated Statements of Operations.
Fair Value of Derivative Assets and Liabilities and Other Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The Company utilizes market data or assumptions that the Company believes market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.
The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
•
|
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
•
|
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
•
|
Level 3—Inputs that are both significant to the fair value measurement and unobservable.
|
In instances in which multiple levels of inputs are used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The following table indicates the fair value hierarchy of the financial instruments of the Company at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
Level 2 Fair Value Measurements
(In thousands)
|
|
December 31
2016
|
|
December 31
2015
|
Assets
|
|
|
|
|
Foreign currency exchange forward contracts
|
|
$
|
4,932
|
|
|
$
|
5,828
|
|
Cross-currency interest rate swaps
|
|
514
|
|
|
15,417
|
|
Liabilities
|
|
|
|
|
Foreign-currency forward exchange contracts
|
|
3,538
|
|
|
1,738
|
|
The following table reconciles the beginning and ending balances for liabilities measured on a recurring basis using unobservable inputs (Level 3) for the years ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
Level 3 Liabilities—Unit Adjustment Liability (c) for the Twelve Months Ended December 31
(In thousands)
|
|
2016
|
|
2015
|
|
Balance at beginning of year
|
|
$
|
79,934
|
|
|
$
|
93,762
|
|
|
Reduction in the fair value related to election not to make 2016 payments
|
|
(19,145
|
)
|
|
—
|
|
|
Sale of equity interest in Brand
|
|
(65,461
|
)
|
|
—
|
|
|
Payments
|
|
—
|
|
|
(22,320
|
)
|
|
Change in fair value to the unit adjustment liability
|
|
4,672
|
|
|
8,491
|
|
|
Balance at end of year
|
|
$
|
—
|
|
|
$
|
79,934
|
|
(d)
|
|
|
(c)
|
See Note 5, Equity Method Investments, for additional information.
|
|
|
(d)
|
Does not total due to rounding.
|
The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs, such as forward rates, interest rates, the Company's credit risk and counterparties' credit risks, and which minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the ability to observe those inputs. Foreign currency exchange forward contracts and CCIRs are classified as Level 2 fair value based upon pricing models using market-based inputs. Model inputs can be verified, and valuation techniques do not involve significant management judgment.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term borrowings approximate fair value due to the short-term maturities of these assets and liabilities. At
December 31, 2016
and
2015
, the total fair value of long-term debt, including current maturities, was
$682.9 million
and
$834.6 million
, respectively, compared with a carrying value of
$673.4 million
and
$880.8 million
, respectively. Fair values for debt are based on quoted market prices (Level 1) for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places cash and cash equivalents with high-quality financial institutions and, by policy, limits the amount of credit exposure to any single institution.
Concentrations of credit risk with respect to accounts receivable are generally limited in the Harsco Industrial Segments. However, the Company's Harsco Metals & Minerals Segment and, to a lesser extent, the Harsco Rail Segment have several large customers throughout the world with significant accounts receivable balances. Consolidation in the global steel or rail industries could result in an increase in concentration of credit risk for the Company.
The Company generally does not require collateral or other security to support customer receivables. If a receivable from one or more of the Company's larger customers becomes uncollectible, it could have a material effect on the Company's results of operations or cash flows.
16. Information by Segment and Geographic Area
The Company reports information about operating segments using the "management approach," which is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance. The Company's reportable segments are identified based upon differences in products, services and markets served.
In
2016
, the Company had
three
reportable segments. These segments and the types of products and services offered include the following:
Harsco Metals & Minerals Segment
Global expertise in providing on-site services for material logistics, product quality improvement and resource recovery from iron, steel and metals manufacturing; as well as value added environmental solutions for industrial co-products. Major customers include steel mills and asphalt roofing manufacturers.
Harsco Industrial Segment
Major products include air-cooled heat exchangers; industrial grating; high-security fencing and boilers and water heaters. Major customers include industrial plants and the non-residential, commercial and public construction and retrofit markets; and the natural gas, natural gas processing and petrochemical industries.
Harsco Rail Segment
This Segment manufactures railway track maintenance equipment and provides track maintenance services. The major customers include private and government-owned railroads and urban mass transit systems worldwide.
Other Information
The measurement basis of segment profit or loss is operating income (loss). There are no significant inter-segment sales. Corporate assets, at
December 31, 2016
and
2015
, include principally cash, prepaid taxes, fair value of derivative instruments and U.S. deferred income taxes. In addition, Corporate assets at December 31, 2015 included the Company's equity method investment in Brand. Countries with revenues from unaffiliated customers or net property, plant and equipment of
ten
percent or more of the consolidated totals (in at least one period presented) are as follows:
Information by Geographic Area
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from Unaffiliated Customers
|
|
|
Year Ended December 31
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
U.S.
|
|
$
|
614,327
|
|
|
$
|
758,820
|
|
|
$
|
880,884
|
|
U.K.
|
|
156,552
|
|
|
217,011
|
|
|
257,885
|
|
All Other
|
|
680,344
|
|
|
747,261
|
|
|
927,519
|
|
Totals including Corporate
|
|
$
|
1,451,223
|
|
|
$
|
1,723,092
|
|
|
$
|
2,066,288
|
|
|
|
(a)
|
Revenues are attributed to individual countries based on the location of the facility generating the revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net
|
|
|
Balances at December 31
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
U.S.
|
|
$
|
125,386
|
|
|
$
|
142,506
|
|
|
$
|
151,397
|
|
China
|
|
90,288
|
|
|
97,305
|
|
|
102,842
|
|
Brazil
|
|
62,597
|
|
|
57,381
|
|
|
69,515
|
|
All Other
|
|
211,984
|
|
|
266,843
|
|
|
339,490
|
|
Totals including Corporate
|
|
$
|
490,255
|
|
|
$
|
564,035
|
|
|
$
|
663,244
|
|
No single customer provided in excess of 10% of the Company's consolidated revenues in
2016
,
2015
and
2014
.
In
2016
, the Harsco Metals & Minerals Segment had
one
customer and in
2015
and
2014
two
customers that each provided in excess of 10% of this Segment's revenues under multiple long-term contracts at several mill sites. Should additional consolidations occur involving some of the steel industry's larger companies which are customers of the Company, it would result in an increase in concentration of credit risk for the Company. The loss of any one of the contracts would not have a material adverse effect upon the Company's financial position or cash flows; however, it could have a significant effect on quarterly or annual results of operations.
In
2016
, the Harsco Industrial Segment had
no
customers, in
2015
two
customers and in
2014
one
customer that provided in excess of 10% of the Segment's revenues. In
2016
and
2014
, the Harsco Rail Segment had
one
customer; and in
2015
two
customers that provided in excess of 10% of the Segment's revenues. The loss of any of these customers would not have a material adverse impact on the Company's financial positions or cash flows; however, it could have a material effect on quarterly or annual results of operations.
Operating Information by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Revenues
|
|
|
|
|
|
|
Harsco Metals & Minerals
|
|
$
|
965,540
|
|
|
$
|
1,106,162
|
|
|
$
|
1,378,142
|
|
Harsco Industrial
|
|
247,542
|
|
|
357,256
|
|
|
412,532
|
|
Harsco Rail
|
|
238,107
|
|
|
259,674
|
|
|
275,614
|
|
Corporate
|
|
34
|
|
|
—
|
|
|
—
|
|
Total Revenues
|
|
$
|
1,451,223
|
|
|
$
|
1,723,092
|
|
|
$
|
2,066,288
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
Harsco Metals & Minerals
|
|
$
|
81,634
|
|
|
$
|
26,289
|
|
|
$
|
13,771
|
|
Harsco Industrial
|
|
23,182
|
|
|
57,020
|
|
|
64,114
|
|
Harsco Rail
|
|
(17,527
|
)
|
|
50,896
|
|
|
37,137
|
|
Corporate
|
|
(23,820
|
)
|
|
(45,669
|
)
|
|
(45,735
|
)
|
Total Operating Income (Loss)
|
|
$
|
63,469
|
|
|
$
|
88,536
|
|
|
$
|
69,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Total Assets
|
|
|
|
|
|
|
Harsco Metals & Minerals
|
|
$
|
1,181,755
|
|
|
$
|
1,294,673
|
|
|
$
|
1,476,538
|
|
Harsco Industrial
|
|
107,987
|
|
|
119,830
|
|
|
127,591
|
|
Harsco Rail
|
|
204,477
|
|
|
219,753
|
|
|
169,035
|
|
Corporate
|
|
87,167
|
|
|
426,941
|
|
|
493,782
|
|
Total Assets
|
|
$
|
1,581,386
|
|
|
$
|
2,061,197
|
|
|
$
|
2,266,946
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
Harsco Metals & Minerals
|
|
$
|
120,611
|
|
|
$
|
136,579
|
|
|
$
|
159,844
|
|
Harsco Industrial
|
|
7,223
|
|
|
6,266
|
|
|
4,928
|
|
Harsco Rail
|
|
5,383
|
|
|
6,093
|
|
|
5,591
|
|
Corporate
|
|
8,269
|
|
|
7,537
|
|
|
5,963
|
|
Total Depreciation and Amortization
|
|
$
|
141,486
|
|
|
$
|
156,475
|
|
|
$
|
176,326
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
Harsco Metals & Minerals
|
|
$
|
62,322
|
|
|
$
|
99,563
|
|
|
$
|
187,665
|
|
Harsco Industrial
|
|
5,118
|
|
|
17,382
|
|
|
9,298
|
|
Harsco Rail
|
|
1,696
|
|
|
1,957
|
|
|
3,120
|
|
Corporate
|
|
204
|
|
|
4,650
|
|
|
8,776
|
|
Total Capital Expenditures
|
|
$
|
69,340
|
|
|
$
|
123,552
|
|
|
$
|
208,859
|
|
Reconciliation of Segment Operating Income to Consolidated Income (Loss) From Continuing Operations Before Income Taxes and Equity Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Segment operating income
|
|
$
|
87,289
|
|
|
$
|
134,205
|
|
|
$
|
115,022
|
|
General Corporate expense
|
|
(23,820
|
)
|
|
(45,669
|
)
|
|
(45,735
|
)
|
Operating income from continuing operations
|
|
63,469
|
|
|
88,536
|
|
|
69,287
|
|
Interest income
|
|
2,475
|
|
|
1,574
|
|
|
1,702
|
|
Interest expense
|
|
(51,584
|
)
|
|
(46,804
|
)
|
|
(47,111
|
)
|
Loss on early extinguishment of debt
|
|
(35,337
|
)
|
|
—
|
|
|
—
|
|
Change in fair value to the unit adjustment liability and loss on dilution and sale of equity method investment
|
|
(58,494
|
)
|
|
(8,491
|
)
|
|
(9,740
|
)
|
Income (loss) from continuing operations before income taxes and equity income (loss)
|
|
$
|
(79,471
|
)
|
|
$
|
34,815
|
|
|
$
|
14,138
|
|
Information about Products and Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from Unaffiliated Customers
|
|
|
Twelve Months Ended
|
|
|
December 31
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Key Product and Services Groups
|
|
|
|
|
|
|
Global expertise in providing on-site services of material logistics, product quality improvement and resource recovery for iron, steel and metals manufacturing; as well as value added environmental solutions for industrial co-products
|
|
$
|
965,540
|
|
|
$
|
1,106,162
|
|
|
$
|
1,378,142
|
|
Railway track maintenance services and equipment
|
|
238,107
|
|
|
259,674
|
|
|
275,614
|
|
Industrial grating and fencing products
|
|
115,914
|
|
|
129,869
|
|
|
139,711
|
|
Air-cooled heat exchangers
|
|
93,616
|
|
|
186,243
|
|
|
226,529
|
|
Heat transfer products
|
|
38,012
|
|
|
41,144
|
|
|
46,292
|
|
General Corporate
|
|
34
|
|
|
—
|
|
|
—
|
|
Consolidated Revenues
|
|
$
|
1,451,223
|
|
|
$
|
1,723,092
|
|
|
$
|
2,066,288
|
|
17. Other Expenses
During
2016
,
2015
and
2014
, the Company recorded pre-tax other expenses from continuing operations of
$12.6 million
,
$30.6 million
and
$57.8 million
, respectively. The major components of this Consolidated Statements of Operations caption are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Net gains
|
|
$
|
(1,764
|
)
|
|
$
|
(10,613
|
)
|
|
$
|
(6,718
|
)
|
Employee termination benefit costs
|
|
10,777
|
|
|
14,914
|
|
|
19,120
|
|
Other costs to exit activities
|
|
440
|
|
|
13,451
|
|
|
4,908
|
|
Impaired asset write-downs
|
|
399
|
|
|
8,170
|
|
|
39,455
|
|
Foreign currency gains related to Harsco Rail Segment advances on contracts
|
|
—
|
|
|
(10,940
|
)
|
|
—
|
|
Harsco Metals & Minerals Segment separation costs
|
|
3,235
|
|
|
9,922
|
|
|
—
|
|
Subcontractor settlement
|
|
—
|
|
|
4,220
|
|
|
—
|
|
Other expense
|
|
(467
|
)
|
|
1,449
|
|
|
1,059
|
|
Total
|
|
$
|
12,620
|
|
|
$
|
30,573
|
|
|
$
|
57,824
|
|
Net Gains
Net gains result from the sales of redundant properties (primarily land, buildings and related equipment) and non-core assets. In 2016, gains related to assets sold principally in Western Europe, North America and Latin America. In 2015, gains related to assets sold principally in North America and Latin America. In 2014, gains related to assets sold primarily in North America and Latin America.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gains
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Harsco Metals & Minerals Segment
|
|
$
|
(1,828
|
)
|
|
$
|
(7,059
|
)
|
|
$
|
(3,538
|
)
|
Harsco Industrial Segment
|
|
64
|
|
|
(3,554
|
)
|
|
(2,077
|
)
|
Corporate
|
|
—
|
|
|
—
|
|
|
(1,103
|
)
|
Total
|
|
$
|
(1,764
|
)
|
|
$
|
(10,613
|
)
|
|
$
|
(6,718
|
)
|
Cash proceeds associated with these gains are included in Proceeds from sales of assets, in the cash flows from investing activities section of the Consolidated Statements of Cash Flows.
Employee Termination Benefit Costs
Costs and the related liabilities associated with involuntary termination benefit costs associated with one-time benefit arrangements provided as part of an exit or disposal activity are recognized by the Company when a formal plan for reorganization is approved at the appropriate level of management and communicated to the affected employees. Additionally, costs associated with ongoing benefit arrangements, or in certain countries where statutory requirements dictate a minimum required benefit, are recognized when they are probable and estimable.
The employee termination benefits costs in 2016 related principally to the Harsco Metals & Minerals Segment, including a probable site exit and the impact of Harsco Metals & Minerals Segment's Improvement Plan ("Project Orion"), primarily in Western Europe, Latin America and North America. The employee termination benefits costs in 2015 related principally to the Harsco Metals & Minerals Segment, including the impact of Project Orion, primarily in Western Europe, North America and Asia Pacific. Additionally, employee termination benefits costs were incurred at Corporate. The employee termination benefits costs in 2014 related primarily to the Harsco Metals & Minerals Segment, including the impact of Project Orion, primarily in Latin America and Western Europe.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Termination Benefit Costs
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Harsco Metals & Minerals Segment
|
|
$
|
8,491
|
|
|
$
|
11,454
|
|
|
$
|
18,169
|
|
Harsco Industrial Segment
|
|
947
|
|
|
561
|
|
|
421
|
|
Harsco Rail Segment
|
|
297
|
|
|
145
|
|
|
185
|
|
Corporate
|
|
1,042
|
|
|
2,754
|
|
|
345
|
|
Total
|
|
$
|
10,777
|
|
|
$
|
14,914
|
|
|
$
|
19,120
|
|
Other Costs to Exit Activities
Costs associated with exit or disposal activities are recognized as follows:
|
|
•
|
Costs to terminate a contract that is not a capital lease are recognized when an entity terminates the contract or when an entity ceases using the right conveyed by the contract. This includes the costs to terminate the contract before the end of its term or the costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity (e.g., lease run-out costs).
|
|
|
•
|
Other costs associated with exit or disposal activities (e.g., costs to consolidate or close facilities and relocate equipment or employees) are recognized and measured at their fair value in the period in which the liability is incurred.
|
In 2016,
$0.4 million
of exit costs were incurred, principally in North America and Western Europe.
In 2015,
$13.5 million
of exit costs were incurred, principally in the Harsco Metals & Minerals Segment, primarily related to the Middle East, North America, Latin America and Western Europe.
Other costs to exit activities during 2015 include costs associated with the Company's exit of operations in Bahrain. Over the past several years the Company has been in discussions with officials at the Supreme Council for Environment in Bahrain with regard to a processing by-product ("salt cakes") located at Hafeera. During 2015, the Company completed the assessment of options available for processing or removing the salt cakes. As a result, the Company has entered into a service agreement with a third party for processing the salt cakes and recorded a charge of
$7.0 million
, payable over
five
to
seven
years, related to the estimated cost of processing and disposal. The Company's Bahrain operations are operated under a strategic venture for which its strategic venture partner has a
35%
minority interest. Accordingly, the net impact of the charge to the Company's net income (loss) attributable to the Company was
$4.6 million
.
In 2014,
$4.9 million
of exit costs were incurred, principally in the Harsco Metals & Minerals Segment, primarily related to North America and Western Europe, partially offset at Corporate by gains from currency translation adjustments recognized in earnings related to historic Harsco Infrastructure Segment entities which were not included as part of the Infrastructure Transaction and retained by the Company. The currency translation adjustments are non-cash items recognized when the Company has substantially liquidated the related investment in a foreign entity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs to Exit Activities
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Harsco Metals & Minerals Segment
|
|
$
|
220
|
|
|
$
|
12,638
|
|
|
$
|
6,395
|
|
Harsco Industrial Segment
|
|
40
|
|
|
—
|
|
|
—
|
|
Corporate
|
|
180
|
|
|
813
|
|
|
(1,487
|
)
|
Total
|
|
$
|
440
|
|
|
$
|
13,451
|
|
|
$
|
4,908
|
|
Impaired Asset Write-downs
Impaired asset write-downs are measured as the amount by which the carrying amount of assets exceeds their fair value. Fair value is estimated based upon the expected future realizable cash flows including anticipated selling prices. Non-cash impaired asset write-downs are included in, Other, net, on the Consolidated Statements of Cash Flows as adjustments to reconcile net income (loss) to net cash provided by operating activities.
In 2016,
$0.4 million
, of impaired asset write-downs were incurred principally in the Harsco Metals & Minerals Segment, mostly in the Asia Pacific region. In 2015,
$8.2 million
of impaired asset write-downs were incurred in the Harsco Metals & Minerals Segment, mostly in North America, Middle East and Africa and the Asia Pacific region. In 2014,
$39.5 million
of impaired asset write-downs were incurred, principally in the Harsco Metals & Minerals Segment and mostly in Western Europe, the Middle East and Africa and the Asia Pacific region as part of Project Orion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Asset Write-downs
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Harsco Metals & Minerals Segment
|
|
$
|
399
|
|
|
$
|
8,170
|
|
|
$
|
38,791
|
|
Harsco Industrial Segment
|
|
—
|
|
|
—
|
|
|
74
|
|
Harsco Rail Segment
|
|
—
|
|
|
—
|
|
|
590
|
|
Total
|
|
$
|
399
|
|
|
$
|
8,170
|
|
|
$
|
39,455
|
|
Foreign Currency Gains Related to Harsco Rail Segment Advances on Contracts
In January 2015, the Swiss National Bank ended its policy of maintaining a stable exchange rate between the Swiss franc and the euro. As a result of this change in policy, the Swiss franc experienced significant appreciation against the euro. During 2015, the Company recognized
$10.9 million
in foreign currency gains primarily related to converting Swiss franc bank deposits to euros. This gain was associated with advances received for the Harsco Rail Segment's two contracts with the SBB.
Harsco Metals & Minerals Segment Separation Costs
The Company has announced its intention to pursue strategic options for the separation of the Harsco Metals & Minerals Segment from the rest of the Company. In 2016 and 2015, the Company incurred
$3.2 million
and
$9.9 million
of expenses related to the strategic review of this initiative, respectively.
Subcontractor Settlement
A subcontractor at the site of a large customer in the Harsco Metals & Minerals Segment had filed arbitration against the Company, claiming that it was owed monetary damages from the Company in connection with its processing certain materials. Additionally, related to this matter, the Company has brought suit against its customer which the Company believed had responsibility for any damages. During 2015, all parties involved reached a binding settlement agreement. The Company recorded a charge of
$4.2 million
related to its obligations under the settlement agreement.
18. Components of Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is included on the Consolidated Statements of Stockholders' Equity. The components of Accumulated other comprehensive loss, net of the effect of income taxes, and activity for the years ended
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Accumulated Other Comprehensive Income (Loss) - Net of Tax
|
(In thousands)
|
|
Cumulative Foreign Exchange Translation Adjustments
|
|
Effective Portion of Derivatives Designated as Hedging Instruments
|
|
Cumulative Unrecognized Actuarial Losses on Pension Obligations
|
|
Unrealized Loss on Marketable Securities
|
|
Total
|
Balance at December 31, 2014
|
|
$
|
(39,938
|
)
|
|
$
|
(9,025
|
)
|
|
$
|
(483,278
|
)
|
|
$
|
(15
|
)
|
|
$
|
(532,256
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(66,305
|
)
|
(a)
|
9,796
|
|
(b)
|
72,796
|
|
(c)
|
(16
|
)
|
|
16,271
|
|
Other comprehensive income (loss) from equity method investee
|
|
(21,950
|
)
|
|
(1,232
|
)
|
|
596
|
|
|
—
|
|
|
(22,586
|
)
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
—
|
|
|
53
|
|
|
20,190
|
|
|
—
|
|
|
20,243
|
|
Total other comprehensive income (loss)
|
|
(88,255
|
)
|
|
8,617
|
|
|
93,582
|
|
|
(16
|
)
|
|
13,928
|
|
Less: Other comprehensive loss attributable to noncontrolling interests
|
|
2,632
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
2,640
|
|
Other comprehensive income (loss) attributable to Harsco Corporation
|
|
(85,623
|
)
|
|
8,625
|
|
|
93,582
|
|
|
(16
|
)
|
|
16,568
|
|
Balance at December 31, 2015
|
|
$
|
(125,561
|
)
|
|
$
|
(400
|
)
|
|
$
|
(389,696
|
)
|
|
$
|
(31
|
)
|
|
$
|
(515,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Accumulated Other Comprehensive Income (Loss) - Net of Tax
|
(In thousands)
|
|
Cumulative Foreign Exchange Translation Adjustments
|
|
Effective Portion of Derivatives Designated as Hedging Instruments
|
|
Cumulative Unrecognized Actuarial Losses on Pension Obligations
|
|
Unrealized Loss on Marketable Securities
|
|
Total
|
Balance at December 31, 2015
|
|
$
|
(125,561
|
)
|
|
$
|
(400
|
)
|
|
$
|
(389,696
|
)
|
|
$
|
(31
|
)
|
|
$
|
(515,688
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(53,301
|
)
|
(a)
|
(1,650
|
)
|
(b)
|
(86,181
|
)
|
(c)
|
26
|
|
|
(141,106
|
)
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
1,157
|
|
|
(263
|
)
|
|
16,011
|
|
|
—
|
|
|
16,905
|
|
Realized (gains) losses reclassified from accumulated other comprehensive loss in connection with loss on dilution of equity method investment (See Note 5, Equity Method Investments)
|
|
28,641
|
|
|
1,636
|
|
|
(1,534
|
)
|
|
—
|
|
|
28,743
|
|
Other comprehensive income (loss) from equity method investee
|
|
1,943
|
|
|
(405
|
)
|
|
306
|
|
|
—
|
|
|
1,844
|
|
Total other comprehensive income (loss)
|
|
(21,560
|
)
|
|
(682
|
)
|
|
(71,398
|
)
|
|
26
|
|
|
(93,614
|
)
|
Less: Other comprehensive loss attributable to noncontrolling interests
|
|
2,587
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
2,580
|
|
Other comprehensive income (loss) attributable to Harsco Corporation
|
|
(18,973
|
)
|
|
(689
|
)
|
|
(71,398
|
)
|
|
26
|
|
|
(91,034
|
)
|
Balance at December 31, 2016
|
|
$
|
(144,534
|
)
|
|
$
|
(1,089
|
)
|
|
$
|
(461,094
|
)
|
|
$
|
(5
|
)
|
|
$
|
(606,722
|
)
|
|
|
(a)
|
Principally foreign currency fluctuation.
|
|
|
(b)
|
Principally net change from periodic revaluations.
|
|
|
(c)
|
Principally changes due to annual actuarial remeasurements.
|
Amounts reclassified from accumulated other comprehensive loss for
2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 2016
|
|
Year Ended December 31 2015
|
|
Affected Caption on the Consolidated Statements of Operations
|
(In thousands)
|
|
Amortization of defined benefit pension items
(d)
:
|
Actuarial losses
|
|
$
|
8,490
|
|
|
$
|
15,810
|
|
|
Selling, general and administrative expenses
|
Actuarial losses
|
|
9,005
|
|
|
5,984
|
|
|
Cost of services and products sold
|
Prior-service costs
|
|
(11
|
)
|
|
121
|
|
|
Selling, general and administrative expenses
|
Prior-service costs
|
|
263
|
|
|
148
|
|
|
Cost of services and products sold
|
Settlement/curtailment losses
|
|
355
|
|
|
—
|
|
|
Selling, general and administrative expenses
|
Total before tax
|
|
18,102
|
|
|
22,063
|
|
|
|
Tax benefit
|
|
(2,091
|
)
|
|
(1,873
|
)
|
|
|
Total reclassification of defined benefit pension items, net of tax
|
|
$
|
16,011
|
|
|
$
|
20,190
|
|
|
|
|
|
|
|
|
|
|
Amortization of cash flow hedging instruments:
|
Foreign currency exchange forward contracts
|
|
$
|
(408
|
)
|
|
$
|
—
|
|
|
Product revenues
|
Foreign currency exchange forward contracts
|
|
(2
|
)
|
|
81
|
|
|
Cost of services and products sold
|
Total before tax
|
|
(410
|
)
|
|
81
|
|
|
|
Tax benefit
|
|
147
|
|
|
(28
|
)
|
|
|
Total reclassification of cash flow hedging instruments
|
|
$
|
(263
|
)
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
Recognition of cumulative foreign exchange translation adjustments:
|
Foreign exchange translation adjustments, before tax
|
|
$
|
1,157
|
|
|
$
|
—
|
|
|
Other expenses
|
Tax benefit
|
|
—
|
|
|
—
|
|
|
|
Total reclassification of cumulative foreign exchange translation adjustments
|
|
$
|
1,157
|
|
|
$
|
—
|
|
|
|
|
|
(d)
|
These accumulated other comprehensive loss components are included in the computation of NPPC. See Note 10, Employee Benefit Plans, for additional information.
|
Realized (gains) losses reclassified from accumulated other comprehensive loss in connection with loss on dilution and sale of equity method investment are as follows:
|
|
|
|
|
|
|
|
(In thousands)
|
|
Twelve Months Ended
|
|
Affected Caption on the
Consolidated Statements of Operations
|
|
December 31
2016
|
|
Foreign exchange translation adjustments
|
|
$
|
45,405
|
|
|
Change in fair value to the adjustment liability and loss on dilution and sale of equity method investment
|
Cash flow hedging instruments
|
|
2,593
|
|
|
Change in fair value to the adjustment liability and loss on dilution and sale of equity method investment
|
Defined benefit pension obligations
|
|
(2,433
|
)
|
|
Change in fair value to the adjustment liability and loss on dilution and sale of equity method investment
|
Total before tax
|
|
45,565
|
|
|
|
Tax benefit
(e)
|
|
(16,822
|
)
|
|
|
Total amounts reclassified from accumulated other comprehensive loss in connection with loss on dilution and sale of equity method investment
|
|
$
|
28,743
|
|
|
|
|
|
(e)
|
For the year ended December 31, 2016 the tax benefit was not recognized on the Consolidated Statement of Operations since a valuation allowance was established against the resulting deferred tax assets. See Note 11, Income Taxes, for additional information.
|
19. Restructuring Programs
In recent years, the Company has instituted restructuring programs to balance short-term profitability goals with long-term strategies. A primary objective of these programs has been to establish platforms upon which the affected businesses can grow with reduced fixed investment and generate annual operating expense savings. The restructuring programs have been instituted in response to the continuing impact of global financial and economic uncertainty on the Company’s end markets. Restructuring costs incurred in these programs were recorded in, Other expenses, of the Consolidated Statements of Operations. The timing of associated cash payments is dependent on the type of restructuring cost and can extend over a multi-year period.
Project Orion
Under Project Orion, the Harsco Metals & Minerals Segment made organizational and process improvement changes that are expected to improve its return on capital and deliver a higher and more consistent level of service to customers. These changes include improving several core processes and simplifying the organizational structure. During the fourth quarter of 2015, Project Orion was expanded with additional targeted workforce and operational savings of
$20 million
to
$25 million
. The majority of these benefits have been realized in 2016.
The restructuring accrual for Project Orion at
December 31, 2016
and
2015
and the activity for the years ended
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
(In thousands)
|
|
Employee Termination Benefit Costs
|
Balance January 1, 2015
|
|
$
|
7,668
|
|
Expense incurred
|
|
5,070
|
|
Other adjustments
|
|
(1,003
|
)
|
Cash expenditures
|
|
(5,854
|
)
|
Foreign currency translation
|
|
(74
|
)
|
Balance, December 31, 2015
|
|
5,807
|
|
Other adjustments
|
|
(47
|
)
|
Cash expenditures
|
|
(5,413
|
)
|
Foreign currency translation
|
|
29
|
|
Balance, December 31, 2016
|
|
$
|
376
|
|
Two-Year Summary of Quarterly Results (Unaudited)
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
(a)
|
|
Quarterly
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Revenues
|
|
$
|
353.3
|
|
|
$
|
369.9
|
|
|
$
|
367.8
|
|
|
$
|
360.2
|
|
|
Gross profit
(b)
|
|
70.2
|
|
|
53.0
|
|
|
81.5
|
|
|
76.0
|
|
|
Net loss attributable to Harsco Corporation
|
|
(10.9
|
)
|
|
(26.2
|
)
|
|
(33.0
|
)
|
|
(15.6
|
)
|
|
Basic loss per share attributable to Harsco Corporation common stockholders:
|
Continuing operations
|
|
$
|
(0.13
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.19
|
)
|
|
Discontinued operations
(c)
|
|
—
|
|
|
0.02
|
|
|
—
|
|
|
(0.01
|
)
|
|
Basic loss per share attributable to Harsco Corporation common stockholders
|
|
$
|
(0.14
|
)
|
(d)
|
$
|
(0.33
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.19
|
)
|
(d)
|
Diluted loss per share attributable to Harsco Corporation common stockholders:
|
Continuing operations
|
|
$
|
(0.13
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.19
|
)
|
|
Discontinued operations
(c)
|
|
—
|
|
|
0.02
|
|
|
—
|
|
|
(0.01
|
)
|
|
Diluted loss per share attributable to Harsco Corporation common stockholders
|
|
$
|
(0.14
|
)
|
(d)
|
$
|
(0.33
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.19
|
)
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
(a)
|
|
Quarterly
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Revenues
|
|
$
|
451.6
|
|
|
$
|
455.7
|
|
|
$
|
428.3
|
|
|
$
|
387.4
|
|
|
Gross profit
(b)
|
|
90.5
|
|
|
95.3
|
|
|
91.7
|
|
|
89.2
|
|
|
Net income (loss) attributable to Harsco Corporation
|
|
15.3
|
|
|
6.6
|
|
|
(8.7
|
)
|
|
(7.0
|
)
|
|
Basic earnings (loss) per share attributable to Harsco Corporation common stockholders:
|
Continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.08
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
Discontinued operations
(c)
|
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
Basic earnings (loss) per share attributable to Harsco Corporation common stockholders
|
|
$
|
0.19
|
|
|
$
|
0.08
|
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders:
|
Continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.08
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
Discontinued operations
(c)
|
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders
|
|
$
|
0.19
|
|
|
$
|
0.08
|
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
(a)
|
Sum of the quarters may not equal the total year due to rounding.
|
|
|
(b)
|
Gross profit is defined as Revenues less costs and expenses associated directly with or allocated to products sold or services rendered.
|
|
|
(c)
|
Discontinued operations related principally to the Gas Technologies Segment which was sold in the fourth quarter of 2007.
|
|
|
(d)
|
Does not total due to rounding.
|
Common Stock Price and Dividend Information
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price Per Share
|
|
Dividends Declared
Per Share
|
|
|
High
|
|
Low
|
|
2016
|
|
|
|
|
|
|
First quarter
|
|
$
|
7.75
|
|
|
$
|
3.55
|
|
|
$
|
—
|
|
Second quarter
|
|
7.56
|
|
|
5.00
|
|
|
—
|
|
Third quarter
|
|
11.18
|
|
|
6.55
|
|
|
—
|
|
Fourth quarter
|
|
15.25
|
|
|
9.05
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
First quarter
|
|
$
|
19.12
|
|
|
$
|
14.50
|
|
|
$
|
0.205
|
|
Second quarter
|
|
17.80
|
|
|
15.31
|
|
|
0.205
|
|
Third quarter
|
|
18.00
|
|
|
8.71
|
|
|
0.205
|
|
Fourth quarter
|
|
12.54
|
|
|
7.69
|
|
|
0.051
|
|