Revenue Recognition

Service revenues and product revenues are recognized to depict the transfer of promised services and products to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those services or products. 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 - This Segment provides on-site services, under long-term contracts, for material logistics; product quality improvement and resource recovery from iron, steel and metals manufacturing; and also manufactures and sells industrial abrasives and roofing granule products.

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Service revenues are recognized over time because the customer simultaneously receives and consumes the benefits provided by the Company's performance. The Company utilizes an appropriate output method based on work performed (liquid steel tons processed, weight of material handled, etc.) to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company at any given point. Transaction prices are determined based on the terms of the contract, which may include both fixed and variable portions. 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 performance of services. Additionally, given the long-term nature of these arrangements, most contracts permit periodic adjustment of either the variable or both the fixed and variable fee portions based on the changes in macroeconomic indicators, including changes in commodity prices. Transaction prices, when the standalone selling price is not directly observable, are allocated to performance obligations utilizing an expected cost plus a margin approach. Amounts are typically billed and payable on a monthly basis as services are performed.

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Product revenues are recognized at the point in time when control transfers to the customer. Control generally transfers to the customer at the point of shipment for domestic orders and in accordance with the international commercial terms included in specific customer contracts for export sales. Transaction prices are determined based on the terms of the contract, which are generally fixed and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Amounts are billed and payable upon completion of each transaction.

At March 31, 2018, the Harsco Metals & Minerals Segment had remaining, fixed, unsatisfied performance obligations, where the expected contract duration exceeds one year totaling $86.5 million. Of this amount, $32.4 million is expected to be fulfilled by March 31, 2019, $24.3 million by March 31, 2020, $16.4 million by March 31, 2021, $7.3 million by March 31, 2022,

$5.5 million by March 31, 2023 and the remainder thereafter. These amounts exclude any variable fees, fixed fees subject to indexation and any performance obligations expected to be satisfied within one year.

Harsco Industrial - Air-X-Changers - This business unit sells air-cooled heat exchangers with revenue recognized over time as control is transferred to the customer. Control transfers to the customer over time because the air-cooled heat exchangers are customized, have no alternate use and the Company has an enforceable right to payment for performance completed. The Company utilizes an input method based on costs incurred to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company at any given point. Transaction prices are determined based on the terms of the contract, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Depending on product type, the Company may receive periodic payments associated with key milestones with any remaining consideration billed and payable upon successful completion of the transaction.

Harsco Industrial - IKG - This business unit sells metal bar grating configurations with revenue recognized at the point in time when control transfers to the customer. Control generally transfers to the customer at the point of shipment for domestic orders and in accordance with the international commercial terms included in specific customer contracts for export sales. Transaction prices are determined based on the terms of the contract, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Amounts are billed and payable upon completion of each transaction though advance payments are required in limited circumstances when credit concerns exist.

Harsco Industrial - Patterson-Kelley - This business unit sells energy-efficient heat transfer products with revenue recognized at the point in time when control transfers to the customer. Control generally transfers to the customer at the point of shipment. Transaction prices are determined based on the terms of the contract, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Amounts are billed and payable upon completion of each transaction.

Harsco Rail - This Segment sells railway track maintenance equipment, after-market parts and provides railway track maintenance services.

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For the majority of railway track maintenance equipment sales, revenue is recognized at the point in time when control transfers to the customer. Control generally transfers to the customer at the point of shipment for domestic orders and in accordance with the international commercial terms included in specific customer contracts for export sales. In certain railway track maintenance equipment sales, revenue is recognized over time as control is transferred to the customer because such equipment is highly customized, has no alternate use and the Company has an enforceable right to payment for performance completed. In such instances, the Company utilizes an input method based on costs incurred to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company at any given point. Transaction prices are determined based on the terms of the contract, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing either the adjusted market assessment or expected cost plus a margin approach. For certain transactions for railway track maintenance equipment with long lead times, the Company receives periodic payments associated with key milestones. In limited instances, the Company may receive payment in advance of related performance with the intent to provide financing with such transactions being treated as including a significant financing component. Any remaining consideration is billed and payable upon successful completion of the transaction.

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For after-market parts sales, revenue is recognized at the point in time when control transfers to the customer. Control generally transfer to the customer at the point of shipment for domestic orders and in accordance with the international commercial terms included in specific customer contracts for export sales. Transaction prices are determined based on the terms of the contract, which are generally fixed, and when the standalone selling price is not directly observable, allocated to performance obligations utilizing an adjusted market assessment approach. Amounts are billed and payable upon completion of each contract.

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For railway track maintenance services, revenue is recognized over time because the customer simultaneously receives and consumes the benefits provided by the Company's performance. In such instances, the Company utilizes an appropriate output method based on work performed (feet, miles, shifts worked, etc.) to measure progress, which is deemed to best depict the transfer of value to the customer and revenue earned by the Company at any given point. Transaction prices are determined based on the terms of the contract, which are generally variable. The variable fee portion is recognized as services are performed and differs from period to period based upon the actual provision of services. Additionally, given the long-term nature of these arrangements, most contracts permit periodic adjustment based on the changes in macroeconomic indicators. Transaction prices, when the standalone selling price is not directly observable, allocated to performance obligations utilizing an expected cost plus a margin approach. Amounts are typically billed and payable on a monthly basis as services are performed.

At March 31, 2018, the Harsco Rail Segment had remaining, fixed, unsatisfied performance obligations, where the expected contract duration exceeds one year totaling $170.2 million. Of this amount, $48.3 million is expected to be fulfilled by

March 31, 2019, $39.3 million by March 31, 2020, $49.2 million by March 31, 2021, $24.3 million by March 31, 2022, and

$9.1 million by March 31, 2023. These amounts exclude any variable fees, fixed fees subject to indexation and any performance obligations expected to be satisfied within one year.

A summary of the Company's revenues by primary geographical markets as well as by key product and service groups is as follows:



	Three Months Ended
	March 31, 2018
(In thousands)	Harsco Metals & Minerals Segment		Harsco Industrial Segment		Harsco Rail Segment		Corporate		Consolidated Totals
Primary Geographical Markets (a):
Western Europe	$	96,921	$	—	$	14,720	$	—	$	111,641
North America	71,065		78,858		40,405		39		190,367
Latin America (b)	41,458		4,740		833		—		47,031
Asia-Pacific	36,221		—		3,720		—		39,941
Middle East and Africa	11,553		—		—		—		11,553
Eastern Europe	7,505		—		—		—		7,505
Total Revenues (c)	$	264,723	$	83,598	$	59,678	$	39	$	408,038
Key Product and Service Groups:
On-site services and 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.	$	264,723	$	—	$	—	$	—	$	264,723
Railway track maintenance services and equipment	—		—		59,678		—		59,678
Industrial grating and fencing products	—		30,097		—		—		30,097
Air-cooled heat exchangers	—		44,267		—		—		44,267
Heat transfer products	—		9,234		—		—		9,234
General Corporate	—		—		—		39		39
Total Revenues (c)	$	264,723	$	83,598	$	59,678	$	39	$	408,038



	Three Months Ended
	March 31, 2017
(In thousands)	Harsco Metals & Minerals Segment		Harsco Industrial Segment		Harsco Rail Segment		Corporate		Consolidated Totals
Primary Geographical Markets (a):
Western Europe	$	91,720	$	—	$	9,539	$	—	$	101,259
North America	67,233		58,351		45,150		34		170,768
Latin America (b)	38,020		6,582		476		—		45,078
Asia-Pacific	32,557		952		4,423		—		37,932
Middle East and Africa	10,556		—		—		—		10,556
Eastern Europe	6,948		—		—		—		6,948
Total Revenues (c)	$	247,034	$	65,885	$	59,588	$	34	$	372,541
Key Product and Service Groups:
On-site services and 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.	$	247,034	$	—	$	—	$	—	$	247,034
Railway track maintenance services and equipment	—		—		59,588		—		59,588
Industrial grating and fencing products	—		28,159		—		—		28,159
Air-cooled heat exchangers	—		30,461		—		—		30,461
Heat transfer products	—		7,265		—		—		7,265
General Corporate	—		—		—		34		34
Total Revenues (c)	$	247,034	$	65,885	$	59,588	$	34	$	372,541


(a)	Revenues are attributed to individual countries based on the location of the facility generating the revenue.


(b)	Includes Mexico.


(c)	The Company has adopted the new revenue recognition standard utilizing the modified retrospective transition method, including use of practical expedients. Comparative information has not been restated and continues to be reported under U.S. GAAP in effect for those periods. See Note 2, Recently Adopted and Recently Issued Accounting Standards for additional information.

In certain instances, the Company may receive payments in advance of earning revenue, in such instances these amounts are treated as Advances on contracts and other customer advances on the Condensed Consolidated Balance Sheets. In other instances, the Company may recognize revenue in advance of being able to contractually invoice the customer, in such instances these amounts are treated as Contract assets on the Condensed Consolidated Balance Sheet. Contract assets are transferred to Trade accounts receivable, net when right to payment becomes unconditional. Contract assets and Contract liabilities are reported as a net position on a contract-by-contract basis at the end of each reporting period. These instances are primarily related to the Harsco Rail Segment and air-cooled heat exchangers business of the Harsco Industrial Segment. The following table reflects Contract assets and Advances on contracts:



(In thousands)	March 31, 2018		December 31, 2017
Contract assets:
Current portion of contract assets	$	23,871	$	—
Contract assets	3,566		—
Total contract assets	$	27,437	$	—
Advances on contracts:
Current portion of advances on contracts	$	38,147	$	117,958
Advances on contracts	21,837		—
Total advances on contracts	$	59,984	$	117,958

The increase in Contract assets and decrease in Advances on contracts is primarily attributable to initial adoption of the FASB issued changes related to revenue recognition. See Note 2, Recently Adopted and Recently Issued Accounting Standards for additional information.

The Company provides assurance type warranties associated primarily with product sales in the Harsco Industrial and Harsco Rail Segments. These assurance type warranties are typically not priced or negotiated separately (there is no option to separately purchase the warranty) or the warranty does not provide customers with a service in addition to the assurance that the product complies with agreed-upon specifications. Accordingly, such assurance type warranties do not represent separate performance obligations. See Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for additional information on warranties.

The Company has elected to utilize the following practical expedients on an ongoing basis as part of the adoption of the new revenue standard:


•	The Company has not adjusted the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers the promised good or services to the customer and when the customer pays for that good or service will be one year or less; and

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The Company has elected to exclude disclosures related to unsatisfied performance obligations where the related contract has a duration of one year or less; or where the consideration allocated to a wholly unsatisfied performance obligation or to a distinct good or service that forms part of a single performance obligation is entirely variable. Accordingly, the Company's disclosure related to unsatisfied performance obligations is limited to the railway track maintenance equipment in the Harsco Rail Segment and the fixed portion of fees related to metals services in the Harsco Metals & Minerals Segment.

Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Additionally, in certain contracts, the Company facilitates shipping and handling activities after control has transferred to the customer. The Company has elected to record all shipping and handling activities as costs to fulfill a contract. In situations where the shipping and handling costs have not been incurred at the time revenue is recognized, the respective shipping and handling costs are accrued.