Discontinued Operations

12 Months Ended

Dec. 31, 2023

Discontinued Operations

Harsco Rail Segment

The Company is in the process of selling the Rail business. The intention to sell the business was first announced in the fourth quarter of 2021. The sale process was delayed due to certain macroeconomic conditions, including rising interest rates. Rail has historically been a separate reportable segment with primary operations in the United States, Europe and Asia Pacific.

Based on indicators of value obtained through the ongoing sale process as well as continuous evaluation of Rail’s business results, the Company performed a quantitative test to assess the recoverability of Rail’s asset group as of December 31, 2023. The Company used multiple methods to determine Rail’s fair value, including a discounted cash flow method, the guideline public company method and use of indicators of value obtained from the sale process. The performance of the recoverability test did not result in an impairment of the Rail asset group as of December 31, 2023. Changes to the stated assumptions, including the weighting between the methods applied and the assumptions within the various methods, could result in the recording of an impairment loss in future periods, which may be material.

Rail's balance sheet positions as of December 31, 2023 and 2022 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 2023		December 31 2022
Trade accounts receivable, net	$	57,415	$	41,049
Other receivables	6,708		4,037
Inventories	103,077		105,256
Current portion of contract assets	56,341		84,848
Other current assets	31,692		30,950
Property, plant and equipment, net	44,749		41,004
Right-of-use assets, net	7,050		5,635
Goodwill	13,026		13,026
Intangible assets, net	2,486		2,746
Deferred income tax assets	827		6,887
Noncurrent portion of contract assets	22,048		—
Other assets	744		807
Total Rail assets included in Assets held-for-sale	$	346,163	$	336,245

Accounts payable	$	44,703	$	49,083
Accrued compensation	6,056		1,211
Current portion of operating lease liabilities	3,656		2,635
Current portion of advances on contracts	32,912		45,037
Reserve for contracts	52,725		32,246
Other current liabilities	31,984		28,793

Operating lease liabilities	3,331		3,121
Deferred tax liabilities	204		5,480
Other liabilities	494		861
Total Rail liabilities included in Liabilities of assets held-for-sale	$	176,065	$	168,467

The results of Rail are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the years ended December 31, 2023, 2022 and 2021. Certain key selected financial information included in Income (loss) from discontinued operations, net of tax, for Rail is as follows:


	Years Ended December 31
(In thousands)	2023		2022		2021
Amounts directly attributable to the former Harsco Rail Segment:
Service revenues	$	52,430	$	29,331	$	32,425
Product revenues (a)	244,365		215,585		266,221
Cost of services sold	34,552		19,550		17,272
Cost of products sold	247,917		223,034		251,897
Income (loss) from discontinued businesses	(30,546)		(40,898)		(19,967)
Additional amounts allocated to the former Harsco Rail Segment:
Selling, general and administrative expenses (b)	$	3,573	$	4,039	$	178

(a) The decrease in product revenues for 2022, as compared to 2021, 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 Rail of $4.2 million for each of the years ended December 31, 2023, 2022 and 2021 as part of Selling, general and administrative expenses on the Consolidated Statements of Operations.

Rail continues to manufacture highly-engineered equipment under large long-term fixed-price contracts with Network Rail, Deutsche Bahn, and two contracts with SBB. The Company has previously recognized estimated forward loss provisions related to these contracts of $44.5 million and $33.4 million for the years ended December 31, 2022 and 2021, respectively. These forward estimated loss provisions were due to several factors, such as material and labor cost inflation, supply chain delays including the bankruptcy of a key vendor and increased engineering efforts. These challenges continued into 2023 and the Company recorded an additional net forward loss provision of $32.8 million for these contracts for the year ended December 31, 2023, as discussed further below.

For Network Rail, in the second quarter of 2023, the Company reversed a portion of its estimated forward loss provision that was recorded in the previous years in the amount of $23.6 million. The favorable adjustment was the result of an amendment to the contract with Network Rail in 2023, which extended the delivery schedule for the machines and reduced the estimate of liquidated damages. Partially offsetting this were higher estimated material, engineering and labor costs. During the fourth quarter of 2023, a loss provision of $9.2 million was recorded due to increased estimated manufacturing costs including higher labor and decreased production efficiency. The increase in estimated costs is due principally to additional experience gained during the manufacturing process, including the restart of production at an idled manufacturing facility. The total net favorable forward loss provision adjustment recognized during 2023 was $14.4 million.

For the Deutsche Bahn contract, during 2023, additional estimated forward loss provisions of $39.9 million were recorded, with $8.3 million, $2.4 million and $29.2 million recorded in the second, third and fourth quarters, respectively. The main drivers of the additional forward loss provisions are increased estimated costs for components and engineering, as well as additional penalties recorded due to delivery delays. The increased costs include additional costs for new supply chain partners after a critical European-based supplier that filed for bankruptcy in 2022 had ceased operations during 2023.

For the second SBB contract, the Company recorded additional estimated forward loss provisions of $7.3 million for 2023, with $6.1 million and $1.2 million recorded in the second and fourth quarters, respectively. The additional loss provision was due to increased estimates for material, engineering and commissioning costs for the remaining vehicles.

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 Company will continue to update its estimates to complete these contracts, which will include the effect of negotiations with the customers regarding price increases, change orders and extensions to delivery schedules.

The first contract with SBB is complete. As of December 31, 2023, based on costs incurred, the second contract with SBB is 85% complete and the contracts with Network Rail and Deutsche Bahn are 53% and 40% complete, respectively.

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


	Years Ended December 31
(In thousands)	2023		2022		2021
Cash flows from operating activities (non-cash)
Depreciation and amortization	$	—	$	—	$	4,329
Cash flows from investing activities
Purchases of property, plant and equipment	2,453		1,618		1,406