Recently Adopted and Recently Issued Accounting Standards

The following accounting standards have been adopted in 2018:

On January 1, 2018, the Company adopted changes, with subsequent amendments, issued by the Financial Accounting Standards Board ("FASB") related to the recognition of revenue from contracts with customers. The changes clarify the principles for recognizing revenue and develop a common revenue standard. The core principle of the changes is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption of these changes resulted in the following modifications to the Company's revenue recognition process:

•

Harsco Industrial Segment - The timing of revenue recognition for air-cooled heat exchanger sales, which the Company historically recognized upon the completion of the efforts associated with these arrangements, is now recognized over time with the impact of increasing revenue in earlier periods. This change also impacted the Company's Condensed Consolidated Balance Sheets by decreasing both Inventories and Advances on contracts; and creating a new caption and establishing a balance related to Contract assets.

•

Harsco Rail Segment - The timing of revenue recognition for certain railway track maintenance equipment sales, which the Company historically recognized upon the completion of the efforts associated with these arrangements, is now recognized over time with the impact of increasing revenue in earlier periods. This change also impacted the Company's Condensed Consolidated Balance Sheets by decreasing both Inventories and Advances on contracts; and creating a new caption and establishing a balance related to Contract assets. In addition, certain advance payments received from customers, which provide a significant benefit of financing and are expected to be outstanding longer than twelve months, are treated as significant financing components to the related transactions and the Company will increase the overall transaction price with a corresponding increase in interest expense.

Additionally, the Company's disclosure related to revenue recognition has been expanded in accordance with the FASB changes. Please refer to Note 14, Revenue Recognition for additional information.

The Company chose to implement the impact of the FASB changes utilizing the modified retrospective transition method, using the following practical expedients:


•	The Company has elected to apply the changes only to revenue arrangements that were not completed as of January 1, 2018; and


•	The Company has elected to reflect the aggregate effect of all contract modifications that occurred prior to the beginning of the earliest reported period when (i) identifying the satisfied and unsatisfied performance obligations;

(ii) determining the transaction price; and (iii) allocating the transaction price to the satisfied and unsatisfied performance obligations.

Comparative information has not been restated and continues to be reported under U.S. GAAP in effect for those periods.

The cumulative effect of the changes made to the Condensed Consolidated Balance Sheet at January 1, 2018 was as follows:



(In thousands)	Balance at December 31, 2017			Impact of Adoption			Balance at January 1, 2018
ASSETS
Current assets:
Trade accounts receivable, net	$	288,034		$	532		$	288,566
Inventories	178,293			(59,793		)	118,500
Current portion of contract assets	—			18,248			18,248
Other current assets	39,332			179			39,511
Total current assets	592,092			(40,834		)	551,258
Contract assets	—			3,566			3,566
Other assets	15,263			1,337			16,600
Total assets	1,578,685			(35,931		)	1,542,754
LIABILITIES
Current liabilities:
Current portion of advances on contracts	117,958			(78,507		)	39,451
Other current liabilities	133,368			13,995			147,363
Total current liabilities	474,128			(64,512		)	409,616
Advances on contracts	—			24,564			24,564
Other liabilities	40,846			1,580			42,426
Total liabilities	1,363,520			(38,368		)	1,325,152
HARSCO CORPORATION STOCKHOLDERS' EQUITY
Accumulated other comprehensive loss	(546,582		)	(1,520		)	(548,102		)
Retained earnings	1,157,801			3,957			1,161,758
Total Harsco Corporation stockholders' equity	170,451			2,437			172,888
Total equity	215,165			2,437			217,602
Total liabilities and equity	1,578,685			(35,931		)	1,542,754

The impact of modifying the Company's Condensed Consolidated Balance Sheet at June 30, 2018 is as follows:



	June 30, 2018
(In thousands)	As Reported		Impact of Adoption			As Reported - Less Impact of Adoption
ASSETS
Current assets:
Trade accounts receivable, net	$	295,390	$	271		$	295,661
Inventories	130,871		78,533			209,404
Current portion of contract assets	18,798		(18,798		)	—
Other current assets	44,562		(174		)	44,388
Total current assets	584,057		59,832			643,889
Contract assets	3,566		(3,566		)	—
Deferred income tax assets	42,387		959			43,346
Other assets	19,394		(1,231		)	18,163
Total assets	1,611,412		55,994			1,667,406



	June 30, 2018
(In thousands)	As Reported		Impact of Adoption		As Reported - Less Impact of Adoption
LIABILITIES
Current liabilities:
Current portion of advances on contracts	39,559		79,991		119,550
Other current liabilities	130,577		(8,727	)	121,850
Total current liabilities	381,306		71,264		452,570
Advances on contracts	13,493		(13,493	)	—
Other liabilities	48,821		(301	)	48,520
Total liabilities	1,345,259		57,470		1,402,729
HARSCO CORPORATION STOCKHOLDERS' EQUITY
Accumulated other comprehensive loss	(557,889	)	1,623		(556,266	)
Retained earnings	1,219,992		(3,079	)	1,216,913
Total Harsco Corporation stockholders' equity	223,732		(1,456	)	222,276
Noncontrolling interests	42,421		(20	)	42,401
Total equity	266,153		(1,476	)	264,677
Total liabilities and equity	1,611,412		55,994		1,667,406

The impact of modifying the Company's Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 are as follows:



	Three Months Ended
	June 30, 2018
(In thousands, except per share amounts)	As Reported			Impact of Adoption			As Reported - Less Impact of Adoption
Revenues from continuing operations:
Services revenues	$	257,963		$	2,321		$	260,284
Product revenues	174,009			(8,406		)	165,603
Total revenues	431,972			(6,085		)	425,887
Costs and expenses from continuing operations:
Costs of services sold	195,906			1,349			197,255
Costs of products sold	122,976			(8,182		)	114,794
Selling, general and administrative costs	58,927			21			58,948
Total costs and expenses	378,347			(6,812		)	371,535
Operating income from continuing operations	53,625			727			54,352
Interest expense	(9,993		)	451			(9,542		)
Income from continuing operations before income taxes	44,079			1,178			45,257
Income tax expense	(1,944		)	12			(1,932		)
Income from continuing operations	42,135			1,190			43,325
Net income	42,711			1,190			43,901
Less: Net income attributable to noncontrolling interests	(2,222		)	2			(2,220		)
Net income attributable to Harsco Corporation	40,489			1,192			41,681
Amounts attributable to Harsco Corporation common stockholders:
Income from continuing operations, net of tax	39,913			1,192			41,105
Net income attributable to Harsco Corporation common stockholders	40,489			1,192			41,681
Basic earnings per share attributable to Harsco Corporation common stockholders:
Continuing operations	0.49			0.01			0.50
Basic earnings per share attributable to Harsco Corporation common stockholders	0.50			0.01			0.51
Diluted earnings per share attributable to Harsco Corporation common stockholders:
Continuing operations	0.48			0.01			0.49
Diluted earnings per share attributable to Harsco Corporation common stockholders	0.48			0.01			0.49



	Six Months Ended
	June 30, 2018
(In thousands, except per share amounts)	As Reported			Impact of Adoption			As Reported - Less Impact of Adoption
Revenues from continuing operations:
Services revenues	$	512,925		$	3,671		$	516,596
Product revenues	327,085			(18,858		)	308,227
Total revenues	840,010			(15,187		)	824,823
Costs and expenses from continuing operations:
Costs of services sold	395,279			2,707			397,986
Costs of products sold	234,956			(18,112		)	216,844
Selling, general and administrative costs	116,010			37			116,047
Total costs and expenses	749,844			(15,368		)	734,476
Operating income from continuing operations	90,166			181			90,347
Interest expense	(19,576		)	903			(18,673		)
Income from continuing operations before income taxes	72,374			1,084			73,458
Income tax expense	(10,210		)	4			(10,206		)
Income from continuing operations	62,164			1,088			63,252
Net income	62,288			1,088			63,376
Less: Net income attributable to noncontrolling interests	(3,991		)	2			(3,989		)
Net income attributable to Harsco Corporation	58,297			1,090			59,387
Amounts attributable to Harsco Corporation common stockholders:
Income from continuing operations, net of tax	58,173			1,090			59,263
Net income attributable to Harsco Corporation common stockholders	58,297			1,090			59,387
Basic earnings per share attributable to Harsco Corporation common stockholders:
Continuing operations	0.72			0.01			0.73
Basic earnings per share attributable to Harsco Corporation common stockholders	0.72			0.01			0.73
Diluted earnings per share attributable to Harsco Corporation common stockholders:
Continuing operations	0.70			0.01			0.71
Diluted earnings per share attributable to Harsco Corporation common stockholders	0.70			0.01			0.71

The impact of modifying the Company's Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 is as follows:



	Six Months Ended June 30, 2018
(In thousands)	As Reported			Impact of Adoption			As Reported - Less Impact of Adoption
Cash flows from operating activities:
Net income	$	62,288		$	1,088		$	63,376
Adjustments to reconcile net income to net cash used by operating activities:
Deferred income tax expense (benefit)	340			(4		)	336
Changes in assets and liabilities:
Accounts receivable	(21,445		)	(797		)	(22,242		)
Inventories	(11,175		)	(22,661		)	(33,836		)
Contract assets	(1,393		)	1,393			—
Advances on contracts	(13,116		)	15,966			2,850
Other assets and liabilities	(11,334		)	5,015			(6,319		)
Net cash used by operating activities	46,699			—			46,699

On January 1, 2018, the Company adopted changes issued by the FASB related to how employers that sponsor defined benefit pension plans and other postretirement plans present the net periodic pension cost ("NPPC") in the statement of operations. Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations. The changes also allow only the service cost component to be eligible for capitalization. The adoption of these changes resulted in the Company reclassifying $0.7 million and $1.4 million of NPPC expense for the three months and six months ended June 30, 2017, respectively, from the captions Cost of services sold; Cost of products sold; and Selling, general and administrative expenses to the new caption, Defined benefit pension income (expense) in the Company's Condensed Consolidated Statements of Operations.

On January 1, 2018, the Company adopted changes issued by the FASB clarifying when revisions to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The changes require modification accounting only in circumstances when the terms or conditions result in changes to the fair value, vesting conditions or classification of the award as an equity instrument or a liability. The adoption of these changes did not have an impact on the Company's condensed consolidated financial statements.

On January 1, 2018, the Company adopted changes issued by FASB 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 resulted in an adjustment to opening retained earnings of less than

$0.1 million.

The following accounting standards have been issued and become effective for the Company at a future date:

In February 2016, the FASB issued changes in accounting for leases, which become effective for the Company on January 1, 2019. The changes introduce a lessee model that brings most leases onto the balance sheet, which will result in an increase in lease-related assets and liabilities. The changes also align many of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. Furthermore, the changes 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 Company is currently assessing existing leasing agreements, evaluating the practical expedients available upon adoption and assessing the impact of the changes on current accounting policies. In addition, the Company is in the process of identifying changes to current business processes and internal controls to support the reporting and disclosure requirements of the new standard. The impact on the consolidation financial statements is currently being evaluated.

In January 2017, the FASB issued changes that remove the second step of the annual goodwill impairment test, which requires a hypothetical purchase price allocation. The changes provide that the amount of goodwill impairment will be equal to the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance remains largely unchanged. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The changes become effective for the Company on January 1, 2020. Management has determined that these changes will not have a material impact on the Company's condensed consolidated financial statements. However, should the Company be required to record a goodwill impairment charge in future periods, the amount recorded may differ compared to any amounts that might be recorded under current practice.

In August 2017, the FASB issued changes which expand and refine hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in this update should be applied to hedging relationships existing on the date of adoption, which includes a cumulative-effect adjustment to eliminate any ineffectiveness recorded to accumulated other comprehensive income or loss with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year in which adoption occurred. Presentation and disclosure amendments are required to be applied prospectively. The changes become effective for the Company on January 1, 2019. Management is currently evaluating the impact of these changes on its condensed consolidated financial statements.

In February 2018, the FASB issued changes which allow entities to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) from accumulated other comprehensive income to retained earnings in their consolidated financial statements. Under the Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income

tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at historical tax rates. The changes become effective for the Company on January 1, 2019. The Company had approximately $21 million of stranded income tax effects in accumulated other comprehensive income at December 31, 2017 resulting from the Act which the Company plans to reclassify upon initial adoption of these changes.