Discontinued Operations

12 Months Ended

Dec. 31, 2022

Discontinued Operations

Harsco Rail Segment

The Company is in the process of selling the Rail business with a sale expected to occur in 2023. The intention to sell the business was first announced in the fourth quarter of 2021. The sales process was delayed in 2022 due to certain macroeconomic conditions, including rising interest rates. 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 December 31, 2022 and 2021 are presented as Assets held-for-sale and Liabilities of assets held-for-sale in the Consolidated Balance Sheets and are summarized as follows:


(in thousands)	December 31 2022		December 31 2021
Trade accounts receivable, net	$	41,049	$	33,689
Other receivables	4,037		4,740
Inventories	105,256		103,560
Current portion of contract assets	84,848		94,597
Other current assets	30,950		25,442
Property, plant and equipment, net	41,004		39,524
Right-of-use assets, net	5,635		3,108
Goodwill	13,026		13,026
Intangible assets, net	2,746		3,081
Deferred income tax assets	6,887		6,064
Other assets	807		6,432
Total Rail assets included in Assets held-for-sale	$	336,245	$	333,263

Accounts payable	$	49,083	$	46,076
Accrued compensation	1,211		2,171
Current portion of operating lease liabilities	2,635		1,619
Current portion of advances on contracts	45,037		62,401
Other current liabilities	61,039		49,732

Operating lease liabilities	3,121		1,775
Deferred tax liabilities	5,480		5,736
Other liabilities	861		981
Total Rail liabilities included in Liabilities of assets held-for-sale	$	168,467	$	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 years ended December 31, 2022, 2021, and 2020. Certain key selected financial information included in Income (loss) from discontinued operations, net of tax, for the former Harsco Rail Segment is as follows:


	Years Ended December 31
(In thousands)	2022		2021		2020
Amounts directly attributable to the former Harsco Rail Segment:
Service revenues	$	29,331	$	32,425	$	31,642
Product revenues (a)	215,585		266,221		298,189
Cost of services sold	21,034		17,272		23,480
Cost of products sold	225,769		251,897		235,040
Income (loss) from discontinued businesses	(40,898)		(19,967)		23,096
Additional amounts allocated to the former Harsco Rail Segment:
Selling, general and administrative expenses (b)	$	4,039	$	178	$	—

(a) The decrease in product revenues for 2022, as compared to 2021 and 2020, is due in part to liquidated damages and penalties on certain long-term contracts, as discussed below.

(b) The Company includes costs to sell the Rail business in the caption Income (loss) from discontinued businesses in the Consolidated Statements of Operations.

The Company has retained corporate overhead expenses previously allocated to the former Harsco Rail Segment of $4.2 million for each of the years ended December 31, 2022, 2021, and 2020 as part of Selling, general and administrative expenses on the 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 Network Rail, Deutsche Bahn and SBB. As previously disclosed, in the fourth quarter of 2021 the Company recognized an estimated forward loss provision of $33.4 million related to these contracts. In 2022, the Company encountered continued supply chain related delays and additional costs in building the machines.

For the Network Rail contracts, the Company encountered 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 first quarter of 2022, which had a cascading effect on the delivery schedule of remaining machines. During 2022, the Company recorded additional forward loss provisions of $29.1 million, principally for additional estimated contractual liquidated damages as a reduction of revenue, of which $24.2 million was recorded in the first quarter of 2022, $0.3 million was recorded in the second quarter of 2022 and $4.6 million was recorded in the fourth quarter of 2022. 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, in March 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. Additionally, this supplier filed for bankruptcy during the second quarter of 2022, although it continues to operate. Delays impacting the project, along with rising costs, resulted in an additional estimated forward loss provision of $7.5 million in the first quarter of 2022 and $4.0 million recorded in the fourth quarter of 2022 for a total loss provision of $11.5 million in 2022, of which $3.1 million is due to the estimated contractual penalties that would be triggered by the delay and thus recorded as a reduction of revenue. Should this supplier cease operations, the Company may incur further losses if there are additional costs to change suppliers or if there is an inability to recover the value of prepayments made to the supplier, as well as incur additional penalties and damages under the contract with Deutsche Bahn in the event of further production delays.

For the second SBB contract, the Company recorded an additional $3.5 million forward estimated loss provision in the first quarter of 2022 due to additional supply chain delays and cost overruns.

The estimated forward loss provisions represent 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 could result in an additional estimated forward loss provision at such time.

The first contract with SBB is complete, and the second contract is 83% complete as of December 31, 2022. The contracts with Network Rail and Deutsche Bahn are 50% and 32% complete, respectively, as of December 31, 2022.

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


	Years Ended December 31
(In thousands)	2022		2021		2020
Non-cash operating items
Depreciation and amortization	$	—	$	4,329	$	5,450
Cash flows from investing activities
Purchases of property, plant and equipment	1,618		1,406		7,962