HARSCO CORP [HSC] Filings

10-Q 1 hsc-20220331.htm 10-Q hsc-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-03970

HARSCO CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			23-1483991
(State or other jurisdiction of incorporation or organization)			(I.R.S. employer identification number)
350 Poplar Church Road,	Camp Hill,	Pennsylvania	17011
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code 717-763-7064

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $1.25 per share

HSC

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Class						Outstanding at April 29, 2022
Common stock, par value $1.25 per share						79,417,543

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HARSCO CORPORATION

FORM 10-Q

INDEX


		Page
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Operations (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Condensed Consolidated Statements of Equity (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	32


PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33









Item 6.	Exhibits	34


SIGNATURES		35

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Glossary of Defined Terms

Unless the context requires otherwise, "Harsco," the "Company," "we," "our," or "us" refers to Harsco Corporation on a consolidated basis. The Company also uses several other terms in this Quarterly Report on Form 10-Q, which are further defined below:


Term						Description
AOCI						Accumulated Other Comprehensive Income (Loss)
AXC						The former Harsco Industrial Air-X-Changers business
CERCLA						Comprehensive Environmental Response, Compensation, and Liability Act of 1980
COVID-19						The COVID-19 coronavirus pandemic
Credit Agreement						Credit Agreement governing the Senior Secured Credit Facilities
DEA						United States Drug Enforcement Agency
DTSC						California Department of Toxic Substances Control
EBITDA						Earnings before interest, tax, depreciation and amortization
ESOL						Stericycle Environmental Solutions business
FASB						Financial Accounting Standards Board
IBORs						Interbank offered rates
ICMS						Type of value-added tax in Brazil
IKG						The former Harsco Industrial IKG business
ISDA						International Swaps and Derivatives Association
LIBOR						London Interbank Offered Rates
New Term Loan						$500 million term loan raised in March 2021 under the Senior Secured Credit Facilities, maturing on March 10, 2028
Notes						5.75% Notes due July 31, 2027
OCI						Other Comprehensive Income (Loss)

PA DEP						Pennsylvania Department of Environmental Protection
Revolving Credit Facility						Multi-year revolving credit facility under the Senior Secured Credit Facility, with a facility limit of $700 million
ROU						Right of use
SBB						Federal railway system of Switzerland
SCE						Supreme Council for Environment in Bahrain
SEC						Securities and Exchange Commission
Senior Secured Credit Facilities						Primary source of borrowings comprised of the Revolving Credit Facility and the New Term Loan
SPRA						State Revenue Authorities from the State of São Paulo, Brazil


TSDF						Treatment, storage, and disposal facility permits issued under the Resource Conservation and Recovery Act
U.S. GAAP						Accounting principles generally accepted in the U.S.

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HARSCO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


(In thousands)	March 31 2022		December 31 2021
ASSETS
Current assets:
Cash and cash equivalents	$	85,216	$	82,908
Restricted cash	4,337		4,220
Trade accounts receivable, net	385,871		377,881

Other receivables	26,128		33,059
Inventories	76,854		70,493

Prepaid expenses	32,393		31,065
Current portion of assets held-for-sale	268,590		265,413
Other current assets	13,096		9,934
Total current assets	892,485		874,973

Property, plant and equipment, net	654,765		653,913
Right-of-use assets, net	96,007		101,576
Goodwill	878,935		883,109
Intangible assets, net	393,733		402,801


Deferred income tax assets	18,207		17,883
Assets held-for-sale	66,518		71,234
Other assets	50,809		48,419
Total assets	$	3,051,459	$	3,053,908
LIABILITIES
Current liabilities:
Short-term borrowings	$	7,292	$	7,748
Current maturities of long-term debt	17,379		10,226
Accounts payable	189,896		186,126

Accrued compensation	41,780		48,165
Income taxes payable	4,085		6,378





Current portion of operating lease liabilities	25,055		25,590
Current portion of liabilities of assets held-for-sale	168,412		161,999
Other current liabilities	139,661		155,159
Total current liabilities	593,560		601,391
Long-term debt	1,422,384		1,359,446


Retirement plan liabilities	73,710		93,693



Operating lease liabilities	69,563		74,571
Liabilities of assets held-for-sale	8,326		8,492
Environmental liabilities	27,565		28,435
Deferred tax liabilities	26,832		33,826
Other liabilities	48,424		48,284
Total liabilities	2,270,364		2,248,138
COMMITMENTS AND CONTINGENCIES
HARSCO CORPORATION STOCKHOLDERS’ EQUITY

Common stock	145,261		144,883
Additional paid-in capital	218,779		215,528
Accumulated other comprehensive loss	(547,649)		(560,139)
Retained earnings	1,754,671		1,794,510
Treasury stock	(848,254)		(846,622)
Total Harsco Corporation stockholders’ equity	722,808		748,160
Noncontrolling interests	58,287		57,610
Total equity	781,095		805,770
Total liabilities and equity	$	3,051,459	$	3,053,908

See accompanying notes to unaudited condensed consolidated financial statements.

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HARSCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended
	March 31
(In thousands, except per share amounts)		2022		2021
Revenues from continuing operations:
Service revenues		$	418,435	$	414,339
Product revenues		34,362		32,926
Total revenues		452,797		447,265
Costs and expenses from continuing operations:
Cost of services sold		346,357		329,853
Cost of products sold		30,662		27,514
Selling, general and administrative expenses		69,153		71,614
Research and development expenses		56		157

Other (income) expenses, net		(1,179)		(991)
Total costs and expenses		445,049		428,147
Operating income from continuing operations		7,748		19,118
Interest income		644		547
Interest expense		(15,092)		(16,256)
Unused debt commitment fees, amendment fees and loss on extinguishment of debt		(532)		(5,258)

Defined benefit pension income		2,410		3,934
Income (loss) from continuing operations before income taxes and equity income		(4,822)		2,085
Income tax benefit (expense) from continuing operations		(1,221)		(2,101)
Equity income (loss) of unconsolidated entities, net		(131)		(119)
Income (loss) from continuing operations		(6,174)		(135)
Discontinued operations:

Income (loss) from discontinued businesses		(39,097)		3,364
Income tax benefit (expense) from discontinued businesses		6,591		(1,664)
Income (loss) from discontinued operations, net of tax		(32,506)		1,700
Net income (loss)		(38,680)		1,565
Less: Net income attributable to noncontrolling interests		(1,159)		(1,430)
Net income (loss) attributable to Harsco Corporation		$	(39,839)	$	135
Amounts attributable to Harsco Corporation common stockholders:
Income (loss) from continuing operations, net of tax		$	(7,333)	$	(1,565)
Income (loss) from discontinued operations, net of tax		(32,506)		1,700
Net income (loss) attributable to Harsco Corporation common stockholders		$	(39,839)	$	135
Weighted-average shares of common stock outstanding		79,363		79,088
Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders:
Continuing operations		$	(0.09)	$	(0.02)
Discontinued operations		(0.41)		0.02
Basic earnings (loss) per share attributable to Harsco Corporation common stockholders		$	(0.50)	$	—
Diluted weighted-average shares of common stock outstanding		79,363		79,088
Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders:
Continuing operations		$	(0.09)	$	(0.02)
Discontinued operations		(0.41)		0.02
Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders		$	(0.50)	$	—

See accompanying notes to unaudited condensed consolidated financial statements.

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HARSCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)



	Three Months Ended
	March 31
(In thousands)	2022		2021
Net income (loss)	$	(38,680)	$	1,565
Other comprehensive income (loss):
Foreign currency translation adjustments, net of deferred income taxes of $(1,838) and $623 in 2022 and 2021, respectively	(2,847)		(3,296)
Net income (loss) on cash flow hedging instruments, net of deferred income taxes of $(330) and $(144) in 2022 and 2021, respectively	1,140		689
Pension liability adjustments, net of deferred income taxes of $(352) and $(338) in 2022 and 2021, respectively	13,718		3,819
Unrealized gain on marketable securities, net of deferred income taxes of $— and $(7) in 2022 and 2021, respectively	(3)		17
Total other comprehensive income (loss)	12,008		1,229
Total comprehensive income (loss)	(26,672)		2,794
Comprehensive income attributable to noncontrolling interests	(677)		(364)
Comprehensive income (loss) attributable to Harsco Corporation	$	(27,349)	$	2,430

See accompanying notes to unaudited condensed consolidated financial statements.

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HARSCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Three Months Ended March 31
(In thousands)	2022		2021
Cash flows from operating activities:
Net income (loss)	$	(38,680)	$	1,565
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	33,604		32,748
Amortization	8,586		8,967
Deferred income tax (benefit) expense	(4,275)		(3,421)
Equity (income) loss of unconsolidated entities, net	131		119
Dividends from unconsolidated entities	178		—


Loss on early extinguishment of debt	—		2,668
Other, net	259		1,128
Changes in assets and liabilities, net of acquisitions and dispositions of businesses:
Accounts receivable	(15,364)		(16,446)
Income tax refunds receivable, reimbursable to seller	7,687		—
Inventories	(4,610)		407
Contract assets	4,843		(19,070)
Right-of-use assets	7,076		6,768
Accounts payable	1,655		(8,592)
Accrued interest payable	(7,393)		(7,320)
Accrued compensation	(5,692)		(1,541)
Advances on contracts	(7,808)		(9,698)


Operating lease liabilities	(7,063)		(6,750)
Retirement plan liabilities, net	(14,519)		(19,267)

Other assets and liabilities	7,070		14,562
Net cash used by operating activities	(34,315)		(23,173)
Cash flows from investing activities:
Purchases of property, plant and equipment	(32,958)		(27,382)


Proceeds from sales of assets	5,976		3,862
Expenditures for intangible assets	(54)		(68)

Net proceeds (payments) from settlement of foreign currency forward exchange contracts	1,061		(1,427)
Payments for settlements of interest rate swaps	(1,062)		—
Other investing activities, net	124		46
Net cash used by investing activities	(26,913)		(24,969)
Cash flows from financing activities:
Short-term borrowings, net	2,051		575
Current maturities and long-term debt:
Additions	72,005		434,873
Reductions	(2,566)		(374,530)






Stock-based compensation - Employee taxes paid	(1,377)		(2,485)
Payment of contingent consideration	(6,915)		—


Deferred financing costs	—		(6,525)
Other financing activities, net	—		(400)
Net cash provided by financing activities	63,198		51,508
Effect of exchange rate changes on cash and cash equivalents, including restricted cash	455		(710)
Net increase in cash and cash equivalents, including restricted cash	2,425		2,656
Cash and cash equivalents, including restricted cash, at beginning of period	87,128		79,669
Cash and cash equivalents, including restricted cash, at end of period	$	89,553	$	82,325

Supplementary cash flow information:
Change in accrual for purchases of property, plant and equipment included in accounts payable	$	(745)	$	1,865

See accompanying notes to unaudited condensed consolidated financial statements.

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HARSCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)


	Harsco Corporation Stockholders’ Equity
	Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests
(In thousands, except share amounts)	Issued		Treasury										Total
Balances, December 31, 2020	$	144,288	$	(843,230)	$	204,078	$	1,797,759	$	(645,741)	$	56,245	$	713,399

Net income							135				1,430		1,565



Total other comprehensive income (loss), net of deferred income taxes of $134									2,295		(1,066)		1,229









Stock appreciation rights exercised, net 3,842 shares	9		(70)		(9)								(70)
Vesting of restricted stock units and other stock grants, net 144,967 shares	312		(1,850)		(312)								(1,850)
Vesting of performance share units, net 69,127 shares	155		(1,032)		(155)								(1,032)

Amortization of unearned portion of stock-based compensation, net of forfeitures					3,342								3,342
Balances, March 31, 2021	144,764		(846,182)		206,944		1,797,894		(643,446)		56,609		716,583


	Harsco Corporation Stockholders’ Equity
(In thousands, except share amounts)	Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests
	Issued		Treasury										Total
Balances, December 31, 2021	$	144,883	$	(846,622)	$	215,528	$	1,794,510	$	(560,139)	$	57,610	$	805,770

Net income							(39,839)				1,159		(38,680)




Total other comprehensive income (loss), net of deferred income taxes of $(2,520)									12,490		(482)		12,008










Vesting of restricted stock units and other stock grants, net 176,253 shares	378		(1,632)		(378)								(1,632)


Amortization of unearned portion of stock-based compensation, net of forfeitures					3,629								3,629
Balances, March 31, 2022	145,261		(848,254)		218,779		1,754,671		(547,649)		58,287		781,095

See accompanying notes to unaudited condensed consolidated financial statements.

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HARSCO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

The Company has prepared these unaudited condensed consolidated financial statements in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the SEC. Accordingly, the unaudited condensed consolidated financial statements do not include all information and disclosure required by U.S. GAAP for annual financial statements. The December 31, 2021 Condensed Consolidated Balance Sheet information contained in this Quarterly Report on Form 10-Q was derived from the 2021 audited consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair statement are reflected in the unaudited condensed consolidated financial statements.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform with current year classifications.

2. Recently Adopted and Recently Issued Accounting Standards

The following accounting standards have been adopted in 2022:

On January 1, 2022, the Company adopted changes issued by the FASB which simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The adoption of these changes did not have a material impact on the Company's condensed consolidated financial statements.

On January 1, 2022, the Company adopted changes issued by the FASB which improve the transparency of government assistance received by entities. Other than expanded annual disclosures, the adoption of these changes did not have a material impact on the Company's consolidated financial statements.

The following accounting standard has been issued and becomes effective for the Company at a future date:

In March 2020, the FASB issued changes that provide companies with optional guidance to ease the potential accounting burden associated with transitioning from reference rates that are expected to be discontinued. In response to the concerns about risks of IBORs and, particularly, the risk of cessation of LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The changes provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued additional clarification changes. The changes can be adopted no later than December 31, 2022 with early adoption permitted. Management does not believe these changes will have a material impact on the Company's consolidated financial statements.

3. Dispositions

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:

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(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

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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

4. Accounts Receivable and Note Receivable

Accounts receivable consist of the following:


(In thousands)	March 31 2022		December 31 2021
Trade accounts receivable	$	392,198	$	385,143
Less: Allowance for expected credit losses	(6,327)		(7,262)

Trade accounts receivable, net	$	385,871	$	377,881

Other receivables (a)	$	26,128	$	33,059

(a) Other receivables include employee receivables, insurance receivable, tax claims and refunds and other miscellaneous items not included in Trade accounts receivable, net.

The provision for expected credit losses related to trade accounts receivable was as follows:


	Three Months Ended
	March 31
(In thousands)		2022		2021
Provision for expected credit losses and doubtful accounts related to trade accounts receivable		$	325	$	654

At March 31, 2022, $6.5 million of the Company's trade accounts receivable were past due by twelve months or more, with $3.5 million of this amount reserved. Collection of the remaining balance is still ultimately expected.

In January 2020 the Company sold IKG for $85.0 million including cash and a note receivable, subject to post-closing adjustments. The note receivable from the buyer has a face value of $40.0 million, bearing interest at 2.50%, that is paid in kind and matures on January 31, 2027. Any unpaid principal, along with any accrued but unpaid interest is payable at maturity. Prepayment is required in case of a change in control or a percentage of excess cash flow, as defined in the note receivable agreement. Because there are no scheduled payments under the terms of the note receivable, the balance is not classified as current as of March 31, 2022 and is included in the caption Other assets on the Condensed Consolidated Balance Sheet. The initial fair value of the note receivable was $34.3 million which was calculated using an average of various discounted cash flow scenarios based on anticipated timing of repayments (Level 3) and was a non-cash transaction. The note receivable is subsequently measured at amortized cost. Key inputs into the valuation model include: projected timing and amount of cash flows, pro forma debt rating, option-adjusted spread and U.S. Treasury spot rate. At March 31, 2022 the amortized cost of the note receivable was $31.4 million, compared with a fair value of $31.8 million.


(In thousands)	March 31 2022		December 31 2021
Note receivable	$	31,425	$	31,025

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5. Inventories

Inventories consist of the following:


(In thousands)	March 31 2022		December 31 2021
Finished goods	$	7,856	$	8,323
Work-in-process	5,963		5,393

Raw materials and purchased parts	22,276		21,188
Stores and supplies	40,759		35,589
Total inventories	$	76,854	$	70,493

6. Property, Plant and Equipment

Property, plant and equipment consist of the following:


(In thousands)	March 31 2022		December 31 2021
Land	$	73,071	$	73,067
Land improvements	16,934		16,970
Buildings and improvements	224,746		221,236
Machinery and equipment	1,532,183		1,507,214
Uncompleted construction	59,612		63,816
Gross property, plant and equipment	1,906,546		1,882,303
Less: Accumulated depreciation	(1,251,781)		(1,228,390)
Property, plant and equipment, net	$	654,765	$	653,913

In the third quarter of 2020, a customer of the Harsco Environmental Segment in China ceased steel making operations at its steel mill site in order to relocate the operations to a new site, as a result of a government mandate to improve environmental conditions of the area. The Company will continue to provide services to the same customer at the new site. The net book value of the idled equipment associated with the previous location is approximately $20 million. The customer has entered into an agreement with the government where it will receive compensation for the losses the customer has incurred as a result of the forced shutdown. The Company has continued discussions with the customer regarding compensation, which are expected to be protracted. While the customer has initially indicated that they will not provide compensation, the Company and the customer continue to discuss and the Company is evaluating its legal position. In addition, there may be other avenues of pursuing recovery, including seeking relief directly from the local government. At this point, considering the ongoing discussions with the customer, and other avenues, the Company believes it will recover the book value of the equipment and thus does not believe it has an asset impairment as of March 31, 2022. However, the Company will continue to evaluate changes in facts and circumstances and record any impairment charge when and if indicated.

7. Leases

The components of lease expense were as follows:


	Three Months Ended
	March 31
(In thousands)		2022		2021
Finance leases:
Amortization expense		$	978	$	475
Interest on lease liabilities		183		102
Operating leases		8,069		7,896

Variable and short-term lease expense		13,343		12,102
Sublease income		(2)		(49)
Total lease expense from continuing operations		$	22,571	$	20,526

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As of March 31, 2022, the Company had additional operating leases for property and equipment that had not yet commenced with estimated operating lease obligations of approximately $16 million to be recognized upon anticipated lease commencement in the second and third quarters of 2022.

8. Goodwill and Other Intangible Assets

The Company tests for goodwill impairment annually, or more frequently if indicators of impairment exist, or if a decision is made to dispose of a business. The Company performs its annual goodwill impairment test as of October 1 and monitors for triggering events on an ongoing basis. The Company determined that, as of March 31, 2022, no interim goodwill impairment testing was necessary. However, a continued economic downturn, including continued cost inflation and labor shortages could impact the Company's future projected cash flows used to estimate fair value, and/or result in a sustained decrease in the Company's share price, which could result in an impairment charge in a future period.

Because of the lower-than-expected results for the Altek Group of the Harsco Environmental Segment for 2021 due to the timing of customer orders, the Company tested Altek's asset group's recoverability in the fourth quarter of 2021 and no impairment was recorded. The long-lived assets (other than goodwill) of the Altek Group within the Harsco Environmental Segment primarily consist of intangible assets which have a carrying value of approximately $36 million at March 31, 2022. The Company has not identified any triggering events for the Altek asset group in the first quarter of 2022. However, if actual results prove inconsistent with the Company’s assumptions and judgments of the projected cash flows, it could result in impairment of the Altek intangible assets in future periods.

9. Debt and Credit Agreements

On February 22, 2022, the Company amended its Senior Credit Facilities to reset the levels of the net debt to consolidated adjusted EBITDA ratio covenant. As a result of this amendment, the net debt to consolidated adjusted EBITDA ratio covenant was set at 5.75 for the quarter ending March 31, 2022, and then decreases quarterly by 0.25 until reaching 4.00 for the quarter ending December 31, 2023 and thereafter. In addition, upon closing on the divestiture of the former Harsco Rail Segment, the net debt to consolidated adjusted EBITDA ratio covenant will decrease by an additional 0.25, provided, however, it will not go below 4.00.

During the three months ended March 31, 2022 and 2021, the Company recognized total expenses of $0.5 million and $5.3 million, respectively, related to the amended Senior Secured Credit Facilities in the caption Unused debt commitment fees, amendment fees and loss on extinguishment of debt on the Condensed Consolidated Statements of Operations.

Long-term debt consists of the following:


(In thousands)	March 31 2022		December 31 2021

Senior Secured Credit Facilities:
New Term Loan	$	496,250	$	497,500


Revolving Credit Facility	434,000		362,000
5.75% Notes, due July 31, 2027	500,000		500,000
Other financing payable (including finance leases) in varying amounts	27,047		28,389
Total debt obligations	1,457,297		1,387,889
Less: deferred financing costs	(17,534)		(18,217)
Total debt obligations, net of deferred financing costs	1,439,763		1,369,672
Less: current maturities of long-term debt	(17,379)		(10,226)
Long-term debt	$	1,422,384	$	1,359,446

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10. Employee Benefit Plans



	Three Months Ended
	March 31
Defined Benefit Pension Plan Income	U.S. Plans			International Plans
(In thousands)	2022		2021	2022	2021
Service cost	$	—	$