Dispositions

3 Months Ended

Mar. 31, 2022

Harsco Rail Segment

In November 2021, the Company announced its intention to sell the Rail business. The sales process was ongoing during the first quarter of 2022. The former Harsco Rail Segment has historically been a separate reportable segment with primary operations in the United States, Europe and Asia Pacific.

The former Harsco Rail Segment's balance sheet positions as of March 31, 2022 and December 31, 2021 are presented as Assets held-for-sale and Liabilities of assets held-for-sale in the Condensed Consolidated Balance Sheets and are summarized as follows:


(in thousands)	March 31 2022		December 31 2021
Trade accounts receivable, net	$	41,546	$	33,689
Other receivables	4,615		4,740
Inventories	102,094		103,560
Current portion of contract assets	94,360		94,597
Other current assets	26,427		25,442
Property, plant and equipment, net	40,009		39,524
Right-of-use assets, net	2,664		3,108
Goodwill	13,026		13,026
Intangible assets, net	2,990		3,081
Deferred income tax assets	6,153		6,064
Other assets	1,224		6,432
Total Rail assets included in Assets held-for-sale	$	335,108	$	333,263

Accounts payable	$	42,874	$	46,076
Accrued compensation	3,023		2,171
Current portion of operating lease liabilities	1,456		1,619
Current portion of advances on contracts	53,732		62,401
Other current liabilities	67,327		49,732

Operating lease liabilities	1,474		1,775
Deferred tax liabilities	5,953		5,736
Other liabilities	898		981
Total Rail liabilities included in Liabilities of assets held-for-sale	$	176,737	$	170,491

The results of the former Harsco Rail Segment are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the three months ended March 31, 2022, and 2021. Certain key selected financial information included in Income (loss) from discontinued operations, net of tax for the former Harsco Rail Segment is as follows:


	Three Months Ended March 31
(In thousands)	2022		2021
Amounts directly attributable to the former Harsco Rail Segment:
Service revenues	$	6,710	$	10,109
Product revenues (a)	44,640		71,481
Cost of services sold	4,675		4,653
Cost of products sold	68,981		59,062
Income (loss) from discontinued businesses	(35,895)		5,155
Additional amounts allocated to the former Harsco Rail Segment:
Selling, general and administrative expenses (b)	$	1,649	$	—

(a) The decrease in product revenues for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 is principally due to the liquidated damages and penalties on certain long-term contracts, as discussed below.

(b) The Company has allocated directly attributable transaction costs to discontinued operations.

The Company has retained corporate overhead expenses previously allocated to the former Harsco Rail Segment of $1.0 million for each of the three months ended March 31, 2022, and 2021 as part of Selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

The Company's former Harsco Rail Segment is currently manufacturing highly-engineered equipment under large long-term fixed-price contracts with the SBB, the infrastructure manager for most of the railway in the U.K. ("Network Rail"), and the national railway company in Germany ("Deutsche Bahn"). As disclosed previously, in the fourth quarter of 2021, the Company recognized an estimated forward loss provision of $33.4 million related to these contracts. In the first quarter of 2022, the Company encountered continued delays and additional costs in the build of the machines. For the Network Rail contracts, the Company encountered additional supply chain delays in the build of the initial machine, and there were further changes to the production schedule based on the manufacturing experience gained from assembling the first unit during the quarter which had a cascading effect on the delivery schedule of remaining machines. As a result, the Company recorded a $24.2 million forward estimated loss provision for additional estimated contractual liquidated damages. The Company continues to negotiate with Network Rail regarding a reduction to these liquidated damages, which could result in additional favorable or unfavorable adjustments in future periods. For the Deutsche Bahn contract, on March 8, 2022 a European-based supplier of critical components to the project indicated it would be significantly late on the delivery of these components to the project, which has the impact of delaying the overall delivery schedule for the project. As a result, the Company recorded an additional $7.4

million estimated forward loss provision due principally to the estimated contractual penalties that would be triggered by this delay. For the second SBB contract, the Company recorded an additional $3.5 million forward estimated loss provision due to additional supply chain delays and cost overruns. The estimated forward loss provision represents the Company's best estimate based on currently available information. It is possible that the Company's overall estimate of liquidated damages, penalties and costs to complete these contracts may change, which would result in an additional estimated forward loss provision at such time.

The first contract with SBB is complete, and the second contract is 79% complete as of March 31, 2022. The contracts with Network Rail and Deutsche Bahn are 45% and 22% complete, respectively, as of March 31, 2022.

The following is selected financial information included on the Condensed Consolidated Statements of Cash Flows attributable to the former Harsco Rail Segment:


	Three Months Ended March 31
(In thousands)	2022		2021
Non-cash operating items
Depreciation and amortization	$	—	$	1,296
Cash flows from investing activities
Purchases of property, plant and equipment	506		365