enviri(NVRI) - 2019 Q4 - Annual Report

Part I Item 1. Business Harsco Corporation is a global provider of environmental solutions and rail sector equipment, strategically transforming to focus on environmental services - The company is transforming into a single-thesis environmental solutions company, with approximately 80% of revenues now generated from its two environmentally-focused segments following the 2019 acquisition of Clean Earth and the sale of its energy-linked business[9][10] Harsco Environmental This segment provides environmental and material processing services to the steel and metals industries globally, focusing on resource recovery and waste-to-value products - Harsco Environmental serves 70 customers at over 145 sites in more than 30 countries, providing environmental services and material processing to the global steel and metals industries[17][18] Estimated Future Revenues from Service Contracts | Period | Estimated Future Revenues (Millions) | Percentage of Total | | :--- | :--- | :--- | | By Dec 31, 2020 | ~$672 million | 21% | | 2021 - 2023 | ~$1,280 million | 40% | | 2024 - 2026 | ~$576 million | 18% | | Thereafter | ~$672 million | 21% | | Total | $3.2 billion | 100% | - In 2019, on-site services represented approximately 85% of the segment's revenues, while applied products (e.g., road materials, abrasives) accounted for about 12%[25][29] - In 2018, the company acquired Altek to expand its environmental solutions business into the aluminum industry, focusing on creating value from waste streams[36][37] Harsco Clean Earth Acquired in June 2019, this segment is a leading U.S. specialty waste processor, handling hazardous, contaminated, and dredged materials across 27 facilities - The company acquired Clean Earth in June 2019, entering the U.S. specialty waste processing market. Clean Earth beneficially reuses 99% of the waste it handles across 27 facilities[41] Clean Earth Revenue Breakdown (H2 2019) | Line of Business | Revenue Contribution (%) | | :--- | :--- | | Contaminated Materials | ~54% | | Hazardous Waste | ~36% | | Dredged Materials | ~10% | - On February 7, 2020, the company announced an agreement to acquire Stericycle Environmental Solutions Business (ESOL) for $462.5 million, further expanding its hazardous waste capabilities[52][77] Harsco Rail This segment provides equipment, parts, and services for railway track construction and maintenance, with a significant increase in its 2019 order backlog Harsco Rail 2019 Revenue Breakdown | Category | Revenue Contribution (%) | | :--- | :--- | | Rail Equipment Sales | ~49% | | Aftermarket Parts & Service | ~40% | | Railway Contracting Services | ~7% | | Protran Technology | ~4% | - The order backlog increased to $446.9 million at year-end 2019, up from $297.2 million at year-end 2018, driven by higher equipment bookings[66] - The company consolidated its principal North American manufacturing and distribution into its Columbia, South Carolina facility, a program that concluded in 2019[68] Acquisitions and Divestitures In 2019, Harsco strategically reshaped its portfolio by acquiring Clean Earth for $628 million and divesting its Industrial segment businesses for over $745 million - Acquired Clean Earth for approximately $628 million in cash in June 2019[78] - Completed the sale of the Harsco Industrial Air-X-Changers business for ~$600 million and the Patterson-Kelley business for ~$60 million in 2019. The remaining Industrial business, IKG, was sold for $85 million subsequent to year-end[79] Item 1A. Risk Factors The company faces material risks from economic conditions, industry cyclicality, customer concentration, international operations, financial obligations, and environmental and litigation exposures - The top five customers in the Harsco Environmental Segment accounted for approximately 32% of that segment's revenues and 22% of the company's consolidated revenues in 2019[94] - International operations are significant, generating 57% of revenues outside the U.S. in 2019, exposing the company to risks such as currency fluctuations, political instability, and complex foreign laws[97] - At December 31, 2019, approximately 36% of the company's $781.8 million total debt had variable interest rates. A one percentage point change in these rates would alter annual interest expense by $2.9 million[109] - The Harsco Clean Earth Segment's operations are highly dependent on obtaining and renewing permits and licenses from various local, state, and federal government bodies[114] - The company is a defendant in numerous legal actions alleging personal injury from exposure to airborne asbestos, with approximately 17,142 pending cases as of December 31, 2019[115][506] Item 2. Properties The company operates globally from owned and leased properties, including executive offices in Pennsylvania, environmental sites, and manufacturing facilities across multiple countries - The company's executive offices are owned and located in Camp Hill, Pennsylvania. The Harsco Environmental Segment primarily operates on customer-owned sites[140][141] - Key manufacturing and processing facilities are located in the U.S. (Kentucky, Pennsylvania, New Jersey, Delaware, Maryland, Michigan, South Carolina), China (Taiyuan City, Tangshan), and the U.K. (Rotherham, Chesterfield)[141] Item 3. Legal Proceedings Details on legal proceedings are incorporated by reference from Note 11, Commitments and Contingencies, in the Financial Statements - Details on legal proceedings are provided in Note 11 of the financial statements[142] Supplementary Item. Information About Our Executive Officers This section lists the company's executive officers as of February 21, 2020, including the Chairman, President, CEO, and CFO, with their professional biographies - F. Nicholas Grasberger III serves as the Chairman, President and Chief Executive Officer[146] - Peter F. Minan serves as the Senior Vice President and Chief Financial Officer[146][147] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Harsco's common stock trades on the NYSE under HSC, with a share repurchase program authorizing up to $75 million through April 2021 - The company's common stock is listed on the NYSE under the symbol HSC. At year-end 2019, there were 78,514,758 shares outstanding[153] - A share repurchase program authorizing up to $75 million is in place through April 2021. During Q4 2019, the company repurchased 349,270 shares at an average price of $17.42[156] Item 6. Selected Financial Data This section provides a five-year financial summary, highlighting 2019 revenues of $1.50 billion, net income of $503.9 million, total assets of $2.37 billion, and total debt of $781.8 million Five-Year Financial Summary (Selected Data) | (In thousands, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues from continuing operations | $1,503,742 | $1,347,672 | $1,307,470 | $1,203,681 | $1,365,836 | | Income (loss) from continuing operations | $28,231 | $100,578 | $(6,810) | $(102,550) | $(33,824) | | Income from discontinued operations | $475,688 | $36,479 | $14,632 | $16,883 | $40,012 | | Net income (loss) attributable to Harsco | $503,919 | $137,057 | $7,822 | $(85,667) | $6,188 | | Diluted EPS from continuing operations | $0.35 | $1.20 | $(0.08) | $(1.28) | $0.42 | | Diluted EPS (Net) | $6.19 | $1.64 | $0.10 | $(1.07) | $0.08 | | Total assets | $2,367,467 | $1,632,867 | $1,578,685 | $1,581,338 | $2,051,887 | | Total debt | $781,811 | $602,229 | $586,623 | $659,072 | $900,934 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This MD&A covers 2019 financial performance, noting revenue growth driven by acquisitions, a decline in operating income due to strategic costs and operational challenges, and a significant decrease in operating cash flow Executive Overview This overview highlights Harsco's strategic transformation in 2019, including the $628 million Clean Earth acquisition and the divestiture of its Industrial segment - Revenues for 2019 increased by approximately 12% year-over-year, driven by the Clean Earth acquisition and strong sales in the Harsco Rail segment[172] - Operating income from continuing operations decreased by about 20% in 2019, primarily due to ~$25 million in strategic costs related to acquisitions, operational challenges in Harsco Rail, and lower demand in Harsco Environmental[172] - Cash flow from operations decreased by $192.2 million, becoming a $0.2 million use of cash, largely due to a $103 million tax payment on the gain from the AXC sale and ~$29 million in transaction costs[172] Results of Operations Consolidated revenues grew 11.6% to $1.50 billion in 2019, while operating income decreased 20.2% to $104.3 million, impacted by segment performance and corporate costs Revenues by Segment (2019 vs. 2018) | (In millions) | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Harsco Environmental | $1,034.8 | $1,068.3 | $(33.5) | (3.1)% | | Harsco Clean Earth | $169.5 | $— | $169.5 | — | | Harsco Rail | $299.4 | $279.3 | $20.1 | 7.2% | | Total Revenues | $1,503.7 | $1,347.7 | $156.1 | 11.6% | Operating Income by Segment (2019 vs. 2018) | (In millions) | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Harsco Environmental | $112.3 | $121.2 | $(8.9) | (7.3)% | | Harsco Clean Earth | $20.0 | $— | $20.0 | — | | Harsco Rail | $23.7 | $37.3 | $(13.6) | (36.5)% | | Corporate | $(51.7) | $(27.8) | $(23.9) | (85.8)% | | Total Operating Income | $104.3 | $130.7 | $(26.4) | (20.2)% | - Selling, general and administrative (SG&A) expenses increased by $50.3 million (25%) in 2019, primarily due to approximately $25 million in strategic costs for acquisitions and a provision for doubtful accounts for a UK customer[191] - The company recognized a gain of $569.1 million from the sale of discontinued businesses (AXC and PK) in 2019[187][204] Liquidity and Capital Resources Net cash used by operating activities was $0.2 million in 2019, a sharp decline from 2018, primarily due to a $103 million tax payment and $29 million in transaction costs Cash Flow Summary | (In millions) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash from Operating activities | $(0.2) | $192.0 | $176.9 | | Net cash from Investing activities | $(132.2) | $(161.1) | $(103.3) | | Net cash from Financing activities | $125.7 | $(25.5) | $(83.7) | - The decrease in operating cash flow was primarily driven by a $103 million tax payment related to the gain on the sale of AXC and approximately $29 million in transaction-related costs[207] - The company was in compliance with its debt covenants at December 31, 2019, with a net leverage ratio of 2.4 to 1.0 (covenant limit of 4.5 to 1.0) and an interest coverage ratio of 6.8 to 1.0 (covenant minimum of 3.0 to 1.0)[232] Application of Critical Accounting Policies This section outlines critical accounting policies, including defined benefit pension accounting, annual goodwill impairment testing, and the cost-to-cost method for long-term contract revenue recognition - The company's annual goodwill impairment test, performed as of October 1, did not result in any impairment of goodwill in 2019[251][257] - For certain long-term contracts, particularly in the Harsco Rail segment, the company uses the cost-to-cost method for revenue recognition, which requires significant judgment in estimating total contract costs[264][265][266] - At December 31, 2019, a remaining estimated forward loss provision of $6.4 million was recorded for contracts with the Swiss federal railway system (SBB)[267][412] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2019, including balance sheets, statements of operations, cash flows, and comprehensive notes Consolidated Balance Sheets As of December 31, 2019, total assets increased to $2.37 billion, total liabilities to $1.58 billion, and total equity to $789.7 million, largely due to the Clean Earth acquisition Consolidated Balance Sheet Highlights (In thousands) | | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $652,812 | $605,034 | | Goodwill | $738,369 | $404,713 | | Total Assets | $2,367,467 | $1,632,867 | | Total Current Liabilities | $464,894 | $416,996 | | Long-term Debt | $775,498 | $585,662 | | Total Liabilities | $1,577,808 | $1,319,491 | | Total Equity | $789,659 | $313,376 | Consolidated Statements of Operations For 2019, total revenues were $1.50 billion, operating income $104.3 million, and net income $512.2 million, significantly boosted by a $569.1 million gain from discontinued operations Consolidated Statement of Operations Highlights (In thousands) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total Revenues | $1,503,742 | $1,347,672 | $1,307,470 | | Operating income from continuing operations | $104,279 | $130,695 | $104,655 | | Income (loss) from continuing operations | $36,530 | $108,534 | $(2,788) | | Gain on sale of discontinued businesses | $569,135 | $— | $— | | Income from discontinued operations, net | $475,688 | $36,479 | $14,632 | | Net income attributable to Harsco | $503,919 | $137,057 | $7,822 | | Diluted EPS | $6.19 | $1.64 | $0.10 | Notes to Consolidated Financial Statements These notes provide detailed disclosures on accounting policies and financial statement items, including acquisitions, debt, pensions, income taxes, and contingencies - Note 3 (Acquisitions): The company acquired Clean Earth for ~$628 million in cash, resulting in the recognition of $330.2 million in goodwill and $242.2 million in intangible assets (primarily permits and trade names)[385][386][387] - Note 7 (Debt): The company issued $500 million of 5.75% senior unsecured notes due 2027 to help fund the Clean Earth acquisition and amended its credit agreement, increasing its revolving credit facility to $700 million[420][436] - Note 9 (Pensions): The company's defined benefit pension plans had a total funded status deficit of $192.1 million at year-end 2019, an improvement from the $210.8 million deficit at year-end 2018[447] - Note 11 (Contingencies): The company settled the Lima Refinery litigation for $195 million, which was fully covered by insurance. It also faces ongoing environmental matters in Bahrain and Brazil, and numerous asbestos-related lawsuits[491][492][503] Item 9A. Controls and Procedures Management concluded that disclosure controls were effective as of December 31, 2019, with the Clean Earth business excluded from the internal control assessment - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[609] - The newly acquired Clean Earth business was excluded from the scope of management's assessment of internal control over financial reporting for 2019, as permitted by SEC guidelines[288][611] Part III Item 10. Directors, Executive Officers and Corporate Governance This section incorporates by reference information from the 2020 Proxy Statement regarding directors, corporate governance, and board committees - Information regarding directors and corporate governance is incorporated by reference from the company's 2020 Proxy Statement[617] Item 11. Executive Compensation This section incorporates by reference information from the 2020 Proxy Statement regarding executive and director compensation - Information regarding executive compensation is incorporated by reference from the company's 2020 Proxy Statement[619] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates by reference information from the 2020 Proxy Statement regarding security ownership and equity compensation plans - Information regarding security ownership and equity compensation plans is incorporated by reference from the company's 2020 Proxy Statement[620][621] Item 13. Certain Relationships and Related Transactions, and Director Independence This section incorporates by reference information from the 2020 Proxy Statement regarding related party transactions and director independence - Information regarding related transactions and director independence is incorporated by reference from the company's 2020 Proxy Statement[622] Item 14. Principal Accounting Fees and Services This section incorporates by reference information from the 2020 Proxy Statement regarding principal accounting fees and services - Information regarding principal accounting fees and services is incorporated by reference from the company's 2020 Proxy Statement[623] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report, including an index to consolidated financial statements - This item provides an index to the Consolidated Financial Statements and lists Schedule II—Valuation and Qualifying Accounts as a supplementary schedule[625] - A comprehensive list of exhibits filed with the report is included, referencing material contracts, credit agreements, and management compensation plans[631][632][633]