Enviri Corporation

10/31/2024 | Press release | Distributed by Public on 10/31/2024 11:10

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

nvri-20240930
Table of Contents
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 September 30, 2024
or
☐ 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
ENVIRI 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)
Two Logan Square
100-120 North 18th Street, 17th Floor, 		Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 267-857-8715
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 NVRI 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 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). 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 ☐ 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 issuer's classes of common stock, as of the latest practicable date.
Class
Outstanding at October 24, 2024
Common stock, par value $1.25 per share 80,135,155
Table of Contents
ENVIRI 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)
10
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
31
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
42
Item 4.
Controls and Procedures
42
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
43
Item 1A.
Risk Factors
43
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
43
Item 5.
Other Information
43
Item 6.
Exhibits
44
SIGNATURES
45
2
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Glossary of Defined Terms
Unless the context requires otherwise, "Enviri," the "Company," "we," "our," or "us" refers to Enviri 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)
AR Facility
Revolving trade receivables securitization facility
ASU Financial Accounting Standards Board Accounting Standards Update
CE Clean Earth reportable business segment
CERCLA Comprehensive Environmental Response, Compensation, and Liability Act of 1980
Consolidated Adjusted EBITDA EBITDA as calculated in accordance with the Company's Credit Agreement.
Credit Agreement Credit Agreement governing the Senior Secured Credit Facilities
DEA United States Drug Enforcement Administration
Deutsche Bahn National railway company in Germany
DTSC
California Department of Toxic Substances Control
EBITDA Earnings before interest, tax, depreciation and amortization
EPA U.S. Environmental Protection Agency
ESOL Stericycle Environmental Solutions business
FASB Financial Accounting Standards Board
HE Harsco Environmental reportable business segment
ICMS Type of value-added tax in Brazil
IKG The former Harsco Industrial IKG business
ISDA International Swaps and Derivatives Association
Network Rail Infrastructure manager for most of the railway in the U.K.
Term Loan
$500 million term loan raised in March 2021 under the Senior Secured Credit Facilities, maturing on March 10, 2028
OCI Other Comprehensive Income (Loss)
Performix
Performix Metallurgical Additives, LLC, a subsidiary of HE
Rail
Harsco Rail reportable business segment
Reed
Reed Minerals, LLC, a subsidiary of HE
Revolving Credit Facility
Revolving credit facility under the Senior Secured Credit Facilities containing $50.0 million maturing on March 10, 2026 and $625.0 million maturing on September 5, 2029
SBB Federal railway system of Switzerland
SCE
Kingdom of Bahrain's Supreme Council for Environment
SEC
U.S. Securities and Exchange Commission
Senior Notes 5.75% Notes due July 31, 2027
Senior Secured Credit Facilities
Primary source of borrowings comprised of the Term Loan and the Revolving Credit Facility
SOFR Secured Overnight Financing Rate
SPE The Company's wholly-owned bankruptcy-remote special purpose entity, which is used in connection with the AR Facility
SPRA State Revenue Authorities from the State of São Paulo, Brazil
U.S. GAAP Accounting principles generally accepted in the U.S.
3
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENVIRI CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands) September 30
2024 		December 31
2023
ASSETS
Current assets:
Cash and cash equivalents $ 110,243 $ 121,239
Restricted cash 2,889 3,375
Trade accounts receivable, net 318,906 338,187
Other receivables 42,960 40,565
Inventories 196,189 189,369
Current portion of contract assets 64,190 64,875
Prepaid expenses 63,818 58,723
Other current assets 6,969 11,023
Total current assets 806,164 827,356
Property, plant and equipment, net 698,315 707,397
Right-of-use assets, net 95,710 102,891
Goodwill 767,076 780,978
Intangible assets, net 305,633 327,983
Deferred income tax assets 16,495 16,295
Other assets 112,682 91,798
Total assets $ 2,802,075 $ 2,854,698
LIABILITIES
Current liabilities:
Short-term borrowings $ 14,357 $ 14,871
Current maturities of long-term debt 17,952 15,558
Accounts payable 245,996 243,279
Accrued compensation 65,414 79,609
Income taxes payable 8,952 7,567
Reserve for forward losses on contracts 53,513 52,919
Current portion of advances on contracts 16,838 38,313
Current portion of operating lease liabilities 27,381 28,775
Other current liabilities 168,676 174,342
Total current liabilities 619,079 655,233
Long-term debt 1,431,868 1,401,437
Retirement plan liabilities 39,900 45,087
Operating lease liabilities 69,977 75,476
Environmental liabilities 22,959 25,682
Deferred tax liabilities 31,749 29,160
Other liabilities 60,664 47,215
Total liabilities 2,276,196 2,279,290
COMMITMENTS AND CONTINGENCIES
ENVIRI CORPORATION STOCKHOLDERS' EQUITY
Common stock 146,706 146,105
Additional paid-in capital 250,855 238,416
Accumulated other comprehensive loss (545,620) (539,694)
Retained earnings 1,483,589 1,528,320
Treasury stock (851,541) (849,996)
Total Enviri Corporation stockholders' equity 483,989 523,151
Noncontrolling interests 41,890 52,257
Total equity 525,879 575,408
Total liabilities and equity $ 2,802,075 $ 2,854,698
See accompanying notes to unaudited condensed consolidated financial statements.
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ENVIRI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands, except per share amounts) 2024 2023 2024 2023
Revenues from continuing operations:
Service revenues $ 488,132 $ 490,791 $ 1,492,569 $ 1,434,314
Product revenues 85,495 106,177 291,368 332,375
Total revenues
573,627 596,968 1,783,937 1,766,689
Costs and expenses from continuing operations:
Cost of services sold 373,924 377,539 1,154,998 1,120,578
Cost of products sold 80,821 93,389 258,227 277,086
Selling, general and administrative expenses 89,183 93,513 266,763 262,175
Research and development expenses 888 902 2,692 2,441
Property, plant and equipment impairment charge - - - 14,099
Remeasurement of long-lived assets
- - 10,695 -
Gain on sale of businesses, net
(8,601) - (10,478) -
Other expense (income), net 40 2,865 6,600 (4,052)
Total costs and expenses 536,255 568,208 1,689,497 1,672,327
Operating income (loss) from continuing operations 37,372 28,760 94,440 94,362
Interest income 981 1,722 6,113 4,796
Interest expense (28,813) (27,552) (84,869) (78,956)
Facility fees and debt-related income (expense) (2,978) (2,806) (8,687) (7,899)
Defined benefit pension income (expense) (4,257) (5,430) (12,599) (16,159)
Income (loss) from continuing operations before income taxes and equity income 2,305 (5,306) (5,602) (3,856)
Income tax benefit (expense) from continuing operations (13,437) (3,498) (31,372) (26,846)
Equity income (loss) of unconsolidated entities, net 38 (151) (84) (593)
Income (loss) from continuing operations (11,094) (8,955) (37,058) (31,295)
Discontinued operations:
Income (loss) from discontinued businesses (1,584) (1,538) (4,287) (4,358)
Income tax benefit (expense) from discontinued businesses 411 399 1,112 1,131
Income (loss) from discontinued operations, net of tax (1,173) (1,139) (3,175) (3,227)
Net income (loss) (12,267) (10,094) (40,233) (34,522)
Less: Net loss (income) attributable to noncontrolling interests (901) (708) (4,498) 2,756
Net income (loss) attributable to Enviri Corporation $ (13,168) $ (10,802) $ (44,731) $ (31,766)
Amounts attributable to Enviri Corporation common stockholders:
Income (loss) from continuing operations, net of tax $ (11,995) $ (9,663) $ (41,556) $ (28,539)
Income (loss) from discontinued operations, net of tax (1,173) (1,139) (3,175) (3,227)
Net income (loss) attributable to Enviri Corporation common stockholders $ (13,168) $ (10,802) $ (44,731) $ (31,766)
Weighted-average shares of common stock outstanding 80,165 79,850 80,085 79,767
Basic earnings (loss) per common share attributable to Enviri Corporation common stockholders:
Continuing operations $ (0.15) $ (0.12) $ (0.52) $ (0.36)
Discontinued operations (0.01) (0.01) (0.04) (0.04)
Basic earnings (loss) per share attributable to Enviri Corporation common stockholders $ (0.16) $ (0.14)
(a)
$ (0.56) $ (0.40)
Diluted weighted-average shares of common stock outstanding 80,165 79,850 80,085 79,767
Diluted earnings (loss) per common share attributable to Enviri Corporation common stockholders:
Continuing operations $ (0.15) $ (0.12) $ (0.52) $ (0.36)
Discontinued operations (0.01) (0.01) (0.04) (0.04)
Diluted earnings (loss) per share attributable to Enviri Corporation common stockholders $ (0.16) $ (0.14)
(a)
$ (0.56) $ (0.40)
(a) Does not total due to rounding
See accompanying notes to unaudited condensed consolidated financial statements.
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ENVIRI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months Ended
September 30
(In thousands) 2024 2023
Net income (loss) $ (12,267) $ (10,094)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of deferred income taxes of $3,438 and $(1,926) in 2024 and 2023, respectively
22,985 (21,133)
Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $1,129 and $(418) in 2024 and 2023, respectively
(3,670) 1,250
Pension liability adjustments, net of deferred income taxes of $(262) and $(293) in 2024 and 2023, respectively
(11,125) 13,580
Unrealized gain (loss) on marketable securities, net of deferred income taxes of $(3) and $1 in 2024 and 2023, respectively
8 (4)
Total other comprehensive income (loss) 8,198 (6,307)
Total comprehensive income (loss) (4,069) (16,401)
Comprehensive (income) loss attributable to noncontrolling interests (2,171) (129)
Comprehensive income (loss) attributable to Enviri Corporation $ (6,240) $ (16,530)
Nine Months Ended
September 30
(In thousands) 2024 2023
Net income (loss) $ (40,233) $ (34,522)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of deferred income taxes of $3,138 and $685 in 2024 and 2023, respectively
(4,355) 1,902
Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $442 and $(1,100) in 2024 and 2023, respectively
(1,679) 3,124
Pension liability adjustments, net of deferred income taxes of $(821) and $(1,003) in 2024 and 2023, respectively
328 10,218
Unrealized gain (loss) on marketable securities, net of deferred income taxes of $(2) and $(1) in 2024 and 2023
5 2
Total other comprehensive income (loss) (5,701) 15,246
Total comprehensive income (loss) (45,934) (19,276)
Less: Comprehensive (income) loss attributable to noncontrolling interests (4,723) 4,812
Comprehensive income (loss) attributable to Enviri Corporation $ (50,657) $ (14,464)
See accompanying notes to unaudited condensed consolidated financial statements.
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ENVIRI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30
(In thousands) 2024 2023
Cash flows from operating activities:
Net income (loss) $ (40,233) $ (34,522)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 111,525 102,893
Amortization 24,089 24,327
Deferred income tax (benefit) expense 5,634 3,946
Equity (income) loss of unconsolidated entities, net 84 593
Dividends from unconsolidated entities 204 -
Property, plant and equipment impairment charge - 14,099
Remeasurement of long-lived assets
10,695 -
Gain on sale of businesses, net
(10,478) -
Other, net 1,928 4,743
Changes in assets and liabilities, net of acquisitions and dispositions of businesses:
Accounts receivable 3,231 (48,175)
Inventories (17,084) (10,548)
Contract assets (14,923) 1,317
Right-of-use assets 23,687 24,467
Accounts payable 7,421 (818)
Accrued interest payable (5,092) (6,828)
Accrued compensation (13,412) 20,436
Advances on contracts (10,446) (21,824)
Operating lease liabilities (23,341) (22,980)
Retirement plan liabilities, net (6,981) (4,862)
Other assets and liabilities (4,737) (92)
Net cash (used) provided by operating activities 41,771 46,172
Cash flows from investing activities:
Purchases of property, plant and equipment (102,094) (93,630)
Proceeds from sale of business, net
57,667 -
Proceeds from sales of assets 12,479 2,080
Expenditures for intangible assets (1,181) (478)
Proceeds from notes receivable 17,023 11,238
Net proceeds (payments) from settlement of foreign currency forward exchange contracts (6,133) 2,034
Other investing activities, net - 462
Net cash used by investing activities (22,239) (78,294)
Cash flows from financing activities:
Short-term borrowings, net (2,982) 4,196
Current maturities and long-term debt:
Additions 201,562 185,992
Reductions (200,584) (140,522)
Dividends paid to noncontrolling interests (15,964) -
Contributions from noncontrolling interests 874 1,654
Stock-based compensation - Employee taxes paid (1,546) (1,374)
Deferred financing costs (3,765) -
Net cash (used) provided by financing activities (22,405) 49,946
Effect of exchange rate changes on cash and cash equivalents, including restricted cash (8,609) (4,231)
Net increase (decrease) in cash and cash equivalents, including restricted cash
(11,482) 13,593
Cash and cash equivalents, including restricted cash, at beginning of period 124,614 85,094
Cash and cash equivalents, including restricted cash, at end of period $ 113,132 $ 98,687
Supplementary cash flow information:
Change in accrual for purchases of property, plant and equipment included in accounts payable $ 3,501 $ (3,252)
See accompanying notes to unaudited condensed consolidated financial statements.
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ENVIRI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
Enviri 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, 2022
$ 145,448 $ (848,570) $ 225,759 $ 1,614,441 $ (567,636) $ 53,600 $ 623,042
Net income (loss)
- - - (9,525) - 935 (8,590)
Total other comprehensive income (loss), net of deferred income taxes of $1,901
- - - - 6,794 358 7,152
Purchase of subsidiary shares from noncontrolling interest - - 398 - - (398) -
Vesting of restricted stock units and other stock grants, net 177,574 shares
395 (1,108) (395) - - - (1,108)
Amortization of unearned portion of stock-based compensation, net of forfeitures - - 3,456 - - - 3,456
Balances, March 31, 2023
$ 145,843 $ (849,678) $ 229,218 $ 1,604,916 $ (560,842) $ 54,495 $ 623,952
Net income (loss)
- - - (11,439) - (4,399) (15,838)
Total other comprehensive income (loss), net of deferred income taxes of $(684)
- - - - 16,236 (1,835) 14,401
Contributions from noncontrolling interest - - - - - 1,654 1,654
Vesting of restricted stock units and other stock grants, net 82,415 shares
123 (130) (123) - - - (130)
Amortization of unearned portion of stock-based compensation, net of forfeitures - - 3,368 - - - 3,368
Balances, June 30, 2023
$ 145,966 $ (849,808) $ 232,463 $ 1,593,477 $ (544,606) $ 49,915 $ 627,407
Net income (loss) - - - (10,802) - 708 (10,094)
Total other comprehensive income (loss), net of deferred income taxes of $(2,636)
- - - - (5,728) (579) (6,307)
Vesting of restricted stock units and other stock grants, net 73,223 shares
113 (136) (113) - - - (136)
Amortization of unearned portion of stock-based compensation, net of forfeitures - - 2,895 - - - 2,895
Balances, September 30, 2023
$ 146,079 $ (849,944) $ 235,245 $ 1,582,675 $ (550,334) $ 50,044 $ 613,765
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Enviri 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, 2023
$ 146,105 $ (849,996) $ 238,416 $ 1,528,320 $ (539,694) $ 52,257 $ 575,408
Net income (loss) - - - (17,962) - 1,116 (16,846)
Cash dividends declared:
Noncontrolling interests - - - - - (8,243) (8,243)
Total other comprehensive income (loss), net of deferred income taxes of $(1,433)
- - - - (6,838) (821) (7,659)
Contributions from noncontrolling interests - - - - - 874 874
Vesting of restricted stock units, net 201,053 shares
443 (1,270) (443) - - - (1,270)
Amortization of unearned portion of stock-based compensation, net of forfeitures - - 3,860 - - - 3,860
Balances, March 31, 2024
$ 146,548 $ (851,266) $ 241,833 $ 1,510,358 $ (546,532) $ 45,183 $ 546,124
Net income (loss) - - - (13,601) - 2,481 (11,120)
Cash dividends declared:
Noncontrolling interests - - - - - (4,308) (4,308)
Total other comprehensive income (loss), net of deferred income taxes of $(112)
- - - - (6,016) (224) (6,240)
Stock appreciation rights exercised, net 603 shares
1 (2) (1) - - - (2)
Vesting of restricted stock units and other stock grants, net 74,725 shares
102 (59) (102) - - - (59)
Amortization of unearned portion of stock-based compensation, net of forfeitures - - 4,403 - - - 4,403
Balances, June 30, 2024
$ 146,651 $ (851,327) $ 246,133 $ 1,496,757 $ (552,548) $ 43,132 $ 528,798
Net income (loss) - - - (13,168) - 901 (12,267)
Cash dividends declared:
Noncontrolling interests - - - - - (3,413) (3,413)
Total other comprehensive income (loss), net of deferred income taxes of $4,302
- - - - 6,928 1,270 8,198
Vesting of restricted stock units and other stock grants, net 23,351 shares
55 (214) (55) - - - (214)
Amortization of unearned portion of stock-based compensation, net of forfeitures - - 4,777 - - - 4,777
Balances, September 30, 2024
$ 146,706 $ (851,541) $ 250,855 $ 1,483,589 $ (545,620) $ 41,890 $ 525,879
See accompanying notes to unaudited condensed consolidated financial statements.
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ENVIRI 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, 2023 Condensed Consolidated Balance Sheet information contained in this Quarterly Report on Form 10-Q was derived from the 2023 audited consolidated financial statements. These 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, 2023. 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 these unaudited Condensed Consolidated Financial Statements.
Going Concern
The Company's cash flow forecasts, existing cash and cash equivalents, borrowings available under the Senior Secured Credit Facilities and the AR Facility indicate sufficient liquidity to fund the Company's operations for at least the next twelve months. As such, the Company's unaudited Consolidated Financial Statements have been prepared on the basis that it will continue as a going concern for a period extending beyond twelve months from the date the unaudited Consolidated Financial Statements are issued. This assessment includes the expected ability to meet required financial covenants and the continued ability to draw down on the Senior Secured Credit Facilities (see Note 9, Debt and Credit Agreements).
Reclassifications
During the nine months ended September 30, 2024, the Company determined that the held-for-sale criteria for Rail was no longer met and, as a result, the Company made reclassifications to prior year amounts previously classified as discontinued operations and assets held-for-sale in the Company's Consolidated Statements of Operations and Consolidated Balance Sheets, along with the accompanying notes to the Company's Consolidated Financial Statements. See Note 3, Discontinued Operations and Dispositions for further details.
2. Recently Adopted and Recently Issued Accounting Standards
The Company has not adopted any accounting standards during the three and nine months ended September 30, 2024:
The following accounting standards have been issued and become effective for the Company at a future date:
In November 2023, the FASB issued changes that require expansion of annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The changes become effective starting with the Company's annual financial statements for the year ended December 31, 2024. The Company is currently evaluating the impact that this change will have on the Company's disclosures and will apply the change retrospectively for all periods presented.
In December 2023, the FASB issued changes which require greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid. The changes become effective starting with the Company's annual financial statements for the year ended December 31, 2025. The guidance should be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the impact that this change will have on the Company's disclosures.
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3. Discontinued Operations and Dispositions
Harsco Rail Segment
The results of the Rail business were previously presented as discontinued operations. However, the held for sale criteria were no longer met beginning with March 31, 2024 as the sales process has been paused. The assets and liabilities of the Rail business, previously presented as held for sale, were reclassified to held and used in the Condensed Consolidated Balance Sheets as of December 31, 2023, and the results of the Rail business were reclassified from discontinued operations to continuing operations for all periods presented in the Condensed Consolidated Statements of Operations. The Rail business' assets and liabilities as of March 31, 2024 were measured at the carrying amount before the assets were classified as held for sale, reduced by $10.7 million representing the depreciation and amortization expense that would have been recognized had the assets been continuously classified as held for use. The $10.7 million reduction to the carrying value of the Rail assets was reported in Remeasurement of long-lived assets in the first quarter of 2024.
The reclassification of the Rail business's balance sheet positions as of December 31, 2023 had the following impacts on the Condensed Consolidated Balance Sheets and are summarized as follows:
(in thousands) December 31
2023
Trade accounts receivable, net $ 57,415
Other receivables 6,708
Inventories 103,077
Current portion of contract assets 56,341
Prepaid expenses 28,797
Other current assets 2,895
Property, plant and equipment, net 44,113
Right-of-use assets, net 7,050
Goodwill 13,026
Intangible assets, net 3,122
Deferred income tax assets 973
Other assets 22,792
Total assets $ 346,309
Accounts payable $ 44,703
Accrued compensation 6,056
Income taxes payable 1,434
Current portion of operating lease liabilities 3,656
Current portion of advances on contracts 32,912
Reserve for forward losses on contracts 52,725
Other current liabilities 30,550
Operating lease liabilities 3,331
Deferred tax liabilities 350
Other liabilities 494
Total liabilities $ 176,211
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The reclassification of the results of the Rail business to continuing operations had the following impacts on the Consolidated Statement of Operations for the three and nine months ended September 30, 2023:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2023 2023
Service revenues $ 17,806 $ 36,291
Product revenues 54,574 189,989
Total revenues 72,380 226,280
Cost of services sold 11,425 24,341
Cost of products sold 50,760 157,265
Total cost of sales 62,185 181,606
Selling, general and administrative expenses 9,124 29,001
Research and development expenses 631 1,494
Other expense (income), net 1,455 2,912
Total costs and expenses 73,395 215,013
Operating income (loss) from continuing operations (1,015) 11,267
Interest income 44 96
Interest expense (813) (2,165)
Defined benefit pension income (expense) 6 19
Income (loss) from continuing operations before income taxes and equity income (1,778) 9,217
Income tax benefit (expense) from continuing operations
611 (5,495)
Income (loss) from continuing operations
$ (1,167) $ 3,722
Harsco Environmental Segment
On April 1, 2024, the Company completed the sale of Performix Metallurgical Additives, LLC, a subsidiary of HE, for $17.5 million, subject to normal post-closing adjustments, and recognized a gain on the sale of $1.8 million (or approximately $1.3 million after-tax).
On August 29, 2024, the Company completed the sale of Reed Minerals, LLC, a subsidiary of HE, for $45.0 million subject to normal post-closing adjustments, and recognized a gain on sale of $8.7 million (or approximately $2.8 million after-tax). The most material classes of assets and liabilities on the date of the sale were Trade accounts receivable, net of $9.9 million, Inventories of $7.1 million, Property, plant and equipment ("PP&E") net of $10.7 million, Goodwill of $13.7 million and Accounts payable of $6.9 million.
Other
Discontinued operations include costs directly attributable to retained contingent liabilities of other previously disposed businesses.
4. Accounts Receivable and Note Receivable
Accounts receivable consist of the following:
(In thousands) September 30
2024 		December 31
2023
Trade accounts receivable $ 331,627 $ 353,709
Less: Allowance for expected credit losses (12,721) (15,522)
Trade accounts receivable, net $ 318,906 $ 338,187
Other receivables (a)
$ 42,960 $ 40,565
(a) Other receivables include employee receivables, insurance receivable, tax claims and refunds and other miscellaneous items not included in Trade accounts receivable, net.
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The change in provision for expected credit losses related to trade accounts receivable was as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Change in provision for expected credit losses
$ (1,361) $ 6,054 $ (880) $ 6,448
At September 30, 2024, $21.4 million of the Company's trade accounts receivable were past due by twelve months or more, with $11.3 million of this amount reserved.
Accounts Receivable Securitization Facility
In June 2022, the Company and its SPE entered into an AR Facility with PNC Bank, National Association ("PNC") to accelerate cash flows from trade accounts receivable. On October 1, 2024, the Company renewed the AR Facility for a three-year term expiring in October 2027. The maximum purchase commitment by PNC is $150.0 million.
The total outstanding balance of trade receivables that have been sold and derecognized by the SPE is $150.0 million as of September 30, 2024 and December 31, 2023. The SPE owned $66.9 million and $82.2 million of trade receivables as of September 30, 2024 and December 31, 2023, respectively, which is included in the caption Trade accounts receivable, net, on the Condensed Consolidated Balance Sheets. See Note 9, Debt and Credit Agreements, for AR Facility expenses incurred.
The Company received proceeds of $5.0 million from the AR Facility for the nine months ended September 30, 2023. No proceeds were received during the nine months ended September 30, 2024
Factoring Arrangements
The Company maintains factoring arrangements with a financial institution to sell certain accounts receivable that are also accounted for as a sale of financial assets and accordingly, derecognized from the Company's Consolidated Balance Sheet. The following table reflects balances for net amounts sold and program capacities for the arrangements:
(In millions) September 30
2024 		December 31
2023
Net amounts sold under factoring arrangements $ 14.7 $ 16.1
Program capacities 20.1 32.6
Note Receivable
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 had a face value of $40.0 million, bearing interest at 2.50%, that is paid in kind with an original maturity of January 31, 2027. Due to a change in control of the ownership of IKG during the second quarter of 2024, prepayment of the note was required, as defined in the note receivable agreement. As such, the Company received a payment of $17.0 million in April 2024, resulting in a pre-tax gain of $2.7 million reflected in the caption Interest income on the Consolidated Statement of Operations. As of December 31, 2023, the balance was classified as noncurrent and is included in the caption Other assets on the Condensed Consolidated Balance Sheet at amortized cost.
(In millions) September 30
2024 		December 31
2023
Note receivable, at amortized cost $ - $ 14.0
Note receivable, fair value - 15.4
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5. Inventories
Inventories consist of the following:
(In thousands) September 30
2024 		December 31
2023
Finished goods $ 22,784 $ 16,171
Work-in-process 20,617 13,081
Raw materials and purchased parts 105,904 114,046
Stores and supplies 46,884 46,071
Total inventories $ 196,189 $ 189,369
6. Property, Plant and Equipment
PP&E consist of the following:
(In thousands) September 30
2024 		December 31
2023
Land and improvements
$ 95,101 $ 93,793
Buildings and improvements 236,279 243,472
Machinery and equipment 1,671,568 1,729,637
Uncompleted construction 64,581 66,241
Gross property, plant and equipment 2,067,529 2,133,143
Less: Accumulated depreciation (1,369,214) (1,425,746)
Property, plant and equipment, net $ 698,315 $ 707,397
During the nine months ended September 30, 2023, the Company recorded an impairment charge of $14.1 million related to abandoned equipment at a customer site of HE China, which is included in the caption Property, plant and equipment impairment charge in the Condensed Consolidated Statements of Operations.
7. Leases
The components of lease expense were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Finance leases:
Depreciation expense
$ 3,445 $ 2,051 $ 9,046 $ 5,614
Interest on lease liabilities 1,164 482 3,064 1,414
Operating leases 9,689 9,277 29,482 28,497
Variable and short-term lease expense 13,756 13,606 41,555 40,136
Sublease income (1) (2) (5) (5)
Total lease expense
$ 28,053 $ 25,414 $ 83,142 $ 75,656
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.
During the nine months ended September 30, 2024, the Company determined that there were no events or indicators present that would indicate that it was more-likely-than-not that its reporting units' fair values were less than their carrying amounts, which would require a further interim impairment analysis. However, unfavorable economic conditions, including continued cost inflation and labor shortages, as well as rising interest rates, could impact the Company's future projected cash flows and discount rates used to estimate fair value, which could result in an impairment charge to any of the Company's reporting units in a future period.
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During the nine months ended September 30, 2024, due to the loss of a customer in Europe for HE, the Company recorded a $2.8 million charge to fully impair the value of a related customer relationship intangible asset. This amount is included in the caption Other expense (income), net on the Consolidated Statement of Operations.
9. Debt and Credit Agreements
Long-term debt consists of the following:
(In thousands) September 30
2024 		December 31
2023
Senior Secured Credit Facilities:
Term Loan
$ 483,750 $ 487,500
Revolving Credit Facility 437,000 422,000
5.75% Senior Notes
475,000 475,000
Other financing payable (including finance leases) in varying amounts 67,638 44,469
Total debt obligations 1,463,388 1,428,969
Less: deferred financing costs (13,568) (11,974)
Total debt obligations, net of deferred financing costs 1,449,820 1,416,995
Less: current maturities of long-term debt (17,952) (15,558)
Long-term debt $ 1,431,868 $ 1,401,437
In September 2024, the Company amended its Senior Secured Credit Facilities to, among other things, extend the term of the Revolving Credit Facility to September 5, 2029 and adjust the limit to $625.0 million. In addition, the Company retained $50.0 million of its existing revolving commitments which mature on March 10, 2026. The extended Revolving Credit Facility bears interest at a rate, depending on total net leverage, ranging from 75 to 125 basis points over base rate or 175 to 225 basis points over SOFR and the existing Revolving Credit Facility bears interest at a rate, depending on total net leverage, ranging from 50 to 175 basis points over base rate or 150 to 275 basis points over SOFR, in each case, subject to zero floor. The Company expensed $0.3 million of previously recorded deferred financing costs and capitalized $4.4 million of fees incurred related to the amendment.
Also as a result of this amendment, the net debt to consolidated adjusted EBITDA ratio covenant is 4.75x for the quarter ended September 30, 2024, and decreases to 4.50x for the quarter ended June 30, 2025, 4.25x for the quarter ended December 31, 2025 and 4.00x thereafter. The Company's required coverage of consolidated interest charges is set at a minimum of 2.75x through the end of 2024 and increases to 3.00x beginning with the first quarter of 2025.
At September 30, 2024, the Company was in compliance with its debt covenants under the Senior Secured Credit Facilities, with a total net debt to Consolidated Adjusted EBITDA ratio of 3.99x and a total interest coverage ratio of 3.15x. The Company believes it will continue to maintain compliance with these covenants based on its current outlook. However, the Company's estimates of compliance with these covenants could change in the future with a deterioration in economic conditions, higher than forecasted interest rates, the timing of working capital including the collection of receivables, an inability to realize increased pricing and implement cost reduction initiatives that mitigate the impacts of inflation and other factors that may adversely impact its compliance with covenants.
Facility Fees and Debt-Related Income (Expense)
The components of the Condensed Consolidated Statements of Operations caption Facility fees and debt-related income (expense) were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Gain (loss) on extinguishment of debt
$ (325) $ - $ (325) $ -
Unused debt commitment and amendment fees - - - (12)
Securitization and factoring fees (2,653) (2,806) (8,362) (7,887)
Facility fees and debt-related income (expense) $ (2,978) $ (2,806) $ (8,687) $ (7,899)
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10. Employee Benefit Plans
Three Months Ended
September 30
Defined Benefit Pension Plan Net Periodic Pension Cost (Benefit) U.S. Plans International Plans
(In thousands) 2024 2023 2024 2023
Service costs $ - $ - $ 334 $ 314
Interest costs 2,419 2,543 7,551 7,664
Expected return on plan assets (2,236) (1,750) (8,480) (7,921)
Recognized prior service costs - - 119 116
Recognized actuarial losses 1,045 1,150 3,864 3,633
Defined benefit pension plan net periodic pension cost (benefit) $ 1,228 $ 1,943 $ 3,388 $ 3,806
Nine Months Ended
September 30
Defined Benefit Pension Plans Net Periodic Pension Cost (Benefit) U.S. Plans International Plans
(In thousands) 2024 2023 2024 2023
Service costs $ - $ - $ 1,007 $ 941
Interest costs 7,257 7,629 22,445 22,645
Expected return on plan assets (6,708) (5,250) (25,194) (23,404)
Recognized prior service costs - - 354 345
Recognized actuarial losses 3,135 3,451 11,459 10,732
Defined benefit pension plans net periodic pension cost (benefit) $ 3,684 $ 5,830 $ 10,071 $ 11,259
Cash contributions to U.S. and international defined benefit pension plans totaled $6.8 million and $13.3 million for the nine months ended September 30, 2024, respectively. The Company's estimate of expected cash contributions to be paid during the remainder of 2024 for the U.S. and international defined benefit pension plans is $0.4 million and $4.4 million, respectively.
11. Income Taxes
Income tax expense from continuing operations for the three and nine months ended September 30, 2024 was $13.4 million and $31.4 million, respectively, compared with $3.5 million and $26.8 million for the three and nine months ended September 30, 2023, respectively. The income tax expense increase for the three months ended September 30, 2024, compared with the three months ended September 30, 2023, primarily includes $5.7 million of tax expense related to the net gain from the Reed sale, the increased disallowed interest expense in the U.S. resulting from reduced income, the withholding tax on cash repatriation in certain foreign jurisdictions, as well as a change in the geographical mix of income, partially offset by the tax benefit resulting from an $11.2 million additional forward loss provision recorded for Rail's Network Rail contract. The increase in income tax expense for the nine months ended September 30, 2024, compared with the nine months ended September 30, 2023, primarily includes $5.7 million of tax expense related to the net gain from the Reed sale, the increased disallowed interest expense in the U.S. resulting from reduced income, the withholding tax on cash repatriation in certain foreign jurisdictions, as well as a change in the geographical mix of income, partially offset by the net tax benefit resulting from the year-over-year change in the forward loss provision recorded for Rail's Network Rail contract of $36.8 million and a $3.7 million valuation allowance for a deferred tax asset in a certain foreign jurisdiction in 2023, not recurring in 2024.
For the three and nine months ended September 30, 2024, the Company calculated its quarterly tax provision based on its best estimate of the full year tax rate applicable to the quarter. For the three and nine months ended September 30, 2023, due to the insignificant amount of pre-tax book loss relative to the size of permanent book-tax differences and a varying net income (loss) pattern projected for the year, the Company's tax provision estimate was determined using an actual year-to-date method.
The reserve for uncertain tax positions on September 30, 2024 and December 31, 2023 was $3.6 million and $3.4 million, respectively, including interest and penalties. Within the next twelve months, it is reasonably possible that $0.6 million in unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.
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12. Commitments and Contingencies
Environmental
The Company is involved in a number of environmental remediation investigations and cleanups and, along with other companies, has been identified as a "potentially responsible party" for certain byproduct disposal sites. While each of these matters is subject to various uncertainties, it is probable that the Company will agree to make payments toward funding certain of these activities, and it is possible that some of these matters will be decided unfavorably to the Company. The Company has evaluated its potential liability and its financial exposure is dependent upon such factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the allocation of cost among potentially responsible parties, the years of remedial activity required and the remediation methods selected.
The Company evaluates its liability for future environmental remediation costs on a quarterly basis. Although actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures, the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with environmental matters in excess of the amounts accrued would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The following table summarizes information related to the location and undiscounted amount of the Company's environmental liabilities:
(In thousands) September 30
2024 		December 31
2023
Current portion of environmental liabilities (a)
$ 8,981 $ 7,540
Long-term environmental liabilities 22,959 25,682
Total environmental liabilities $ 31,940 $ 33,222
(a) The current portion of environmental liabilities is included in the caption Other current liabilities on the Condensed Consolidated Balance Sheets.
Legal Proceedings
In the ordinary course of business, the Company is a defendant or party to various claims and lawsuits, including those discussed below. Unless stated otherwise below, the Company has not determined a loss to be probable or estimable for the legal proceedings.
In November 2022, the EPA and the Kentucky Department for Environmental Protection (the "KDEP") conducted an inspection of Clean Earth of Calvert City LLC's facility in Calvert City, KY and alleged several violations for which the EPA proposed a civil penalty of $0.8 million. On June 30, 2024, the EPA verbally agreed to a settlement involving a combination of civil penalties in the amount of $0.2 million and a Supplemental Environmental Project estimated to cost approximately $1.0 million that requires installing a concrete and storm water management system to enhance compliance and protection of the environment.
On January 27, 2020, the EPA issued a Notice of Potential Liability to the Company, along with several other companies, concerning the Newtown Creek Superfund Site located in Kings and Queens Counties in New York, which alleges certain facilities formerly owned or operated by subsidiaries of the Company may have resulted in the discharge of hazardous substances into Newtown Creek or its Dutch Kills tributary. The site has been subject to CERCLA response activities since approximately 2011. The EPA expects to issue a Record of Decision for the sitewide cleanup plan no sooner than 2028 and announced, in July 2021, that it would defer its decision on a potential early action response for the lower two miles of the Creek until the sitewide studies are completed. On August 28, 2024, the EPA released a proposed plan for clean up of the East Branch portion of Newtown Creek. The Company is one of 23 Potentially Responsible Parties ("PRPs") that have received notices, though it is believed other PRPs may exist. The Company vigorously contests the allegations of this notice and currently does not believe that this matter will have a material effect on the Company's financial position or results from operations.
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On June 25 and 26, 2018, the DTSC conducted a compliance enforcement inspection of ESOL's facility in Rancho Cordova, California, which was then owned by Stericycle, Inc. On February 14, 2020, the DTSC filed an action in the Superior Court for the State of California, Sacramento Division, alleging violations of California's Hazardous Waste Control Law and the facility's hazardous waste permit arising from the inspection. On August 27, 2020, the DTSC issued a Notice of Denial of Hazardous Waste Facility Permit Application, denying the renewal of the facility's hazardous waste permit. The Company continues to utilize the site for non-hazardous waste and is evaluating additional potential alternate uses for the site. The DTSC investigation and compliance issues leading to the compliance tier assignment were ongoing well before the Company's acquisition of the ESOL business, and the Company was aware of the investigation and many of the issues raised in the investigation at the time of the purchase. Accordingly, the Company is indemnified for certain fines and other costs and expenses associated with this matter by Stericycle, Inc. In May 2024, Stericycle consummated a settlement, on behalf of itself and the Company, with the DTSC in the February 2020 Superior Court action for payment of $3.1 million and other injunctive relief related to the ongoing closure of the hazardous waste facility. A final consent judgment for penalties and permanent injunction was approved and entered by the Court on June 6, 2024. In July 2024, on behalf of itself and the Company, Stericycle paid all fines in this matter.
The Company has had ongoing meetings with the SCE over processing salt cakes, a processing byproduct, stored at the Al Hafeerah site. The Company's Bahrain operations that produced the salt cakes has ceased operations. An Environmental Impact Assessment and Technical Feasibility Study for facilities to process the salt cakes was approved by the SCE during the first quarter of 2018. Commissioning of the facilities was completed during the third quarter of 2021 and the processing of the salt cakes has commenced. The Company's current reserve of $4.9 million at September 30, 2024 continues to represent the Company's best estimate of the ultimate costs to be incurred to resolve this matter. The Company continues to evaluate this reserve and any future change in estimated costs which could be material to the Company's results of operations in any one period.
On July 27, 2018, Brazil's Federal and Rio de Janeiro State Public Prosecution Offices (the "MPF" and "MPE", respectively) filed a Civil Public Action against CSN, one of the Company's customers, the Company's Brazilian subsidiary, the Municipality of Volta Redonda, Brazil, and the Instituto Estadual do Ambiente, the state of Rio de Janeiro's environmental protection agency, seeking the implementation of various measures to limit and reduce the accumulation of customer-owned slag at the site in Brazil. On August 6, 2018, the 3rd Federal Court in Volta Redonda (the "Volta Redonda Court") granted the MPF and MPE an injunction against the defendants requiring, among other things, CSN and the Company's Brazilian subsidiary to limit the volume of slag sent to the site. Because the customer owns the site and the slag located on the site, the Company believes that complying with this injunction is the steel producer's responsibility. Nevertheless, the Volta Redonda Court issued two orders fining the Company and CSN for what it viewed as violations of the injunction. The Company appealed the fines and the underlying injunction and, beginning on March 25, 2022, the Volta Redonda Court entered a series of orders suspending the litigation proceedings and staying any additional fines and interest accruals while the parties discuss a possible resolution to the matter. The aggregate amount of fines levied against the Company, exclusive of interest, is approximately 32 million Brazilian reais (or approximately $6 million as of September 30, 2024), plus interest. On October 5, 2024, the Volta Redonda Court determined that, as of August 1, 2024, the Company was not responsible for complying with the injunction because the Company no longer operates at the site. The Company and the other parties continue to discuss a potential resolution related to the portion of the authorities' claims that allegedly occurred prior to August 1, 2024. The Company does not believe that a loss relating to this matter is probable or estimable at this point.
In October 2021, the Company received a subpoena and two indictments before the Amsterdam District Court in the Netherlands concerning the Company's operations at a customer site Ijmuiden, Netherlands. The Amsterdam Public Prosecutor's Office ("APPO") issued two indictments against the Company, alleging violations in connection with dust releases and/or events alleged to have occurred in 2018 through May 2020 at the site. The action cited provisions which permit fines for the alleged infractions and sought €0.1 million in fines with a smaller amount held in abeyance. On February 2, 2022, the APPO announced that it would further investigate residents' claims related to this matter. On February 25, 2022, the Amsterdam District Court ruled that the Company was liable for only one alleged violation and that this alleged violation was unintentional. The court issued a fine of €5 thousand, to be held in abeyance. Both the Company and the APPO appealed this ruling. An appellate hearing was held on July 5, 2024, with the APPO seeking €0.3 million in fines. On July 19, 2024, the Court of Appeals ruled that the Company was liable for two alleged intentional violations and issued a fine of €25 thousand. Both the Company and the APPO have appealed this ruling. The Company is vigorously contesting all allegations against it and is also working with its customer to ensure the control of emissions. The Company has contractual indemnity rights from its customer that it believes will substantially cover any fines or penalties.
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DEA Investigation
Prior to the Company's acquisition of ESOL, Stericycle, Inc. notified the Company that the DEA had served an administrative subpoena on Stericycle, Inc. and executed a search warrant at a facility in Rancho Cordova, CA and an administrative inspection warrant at a facility in Indianapolis, IN. The Company has determined that the DEA and the DTSC have launched investigations involving, at least in part, the ESOL business of collecting, transporting, and destroying controlled substances from retail customers that transferred from Stericycle, Inc. to the Company. The Company is cooperating with these inquiries, which relate primarily to the period before the Company owned the ESOL business. Since the acquisition of the ESOL business, the Company has performed a vigorous review of ESOL's compliance program related to controlled substances and has made material changes to the manner in which controlled substances are transported from retail customers to DEA-registered facilities for destruction. Pursuant to an agreement with Stericycle, the Company has contractual recourse for any material loss the Company has determined is reasonably possible. The Company has not accrued any amounts in respect of these investigations and does not believe a loss is probable.
Brazilian Tax Disputes
The Company is involved in a number of tax disputes with federal, state and municipal tax authorities in Brazil. These disputes are at various stages of the legal process, including the administrative review phase and the collection action phase, and include assessments of fixed amounts of principal and penalties, plus interest charges that increase at statutorily determined amounts per month and are assessed on the aggregate amount of the principal and penalties. In addition, at the collection action or court of appeals phase, the losing party could be subject to a charge to cover statutorily mandated legal fees, which are generally calculated as a percentage of the total assessed amounts due, inclusive of penalty and interest. Many of the claims relate to ICMS, services and social security tax disputes. The largest proportion of the assessed amounts relate to ICMS claims filed by the SPRA, encompassing the period from January 2002 to May 2005.
In October 2009, the Company received notification of the SPRA's final administrative decision regarding the levying of ICMS in the State of São Paulo in relation to services provided to a customer in the State between January 2004 and May 2005. Another ICMS tax case involving the SPRA refers to the tax period from January 2002 to December 2003. On April 23, 2024, the Company's customer directed the Company to accept a settlement offer made by the SPRA and the Company accepted the settlement offer on April 26, 2024. Under the settlement, the Company will pay a total of $3.5 million over sixty months, plus interest, in return for a full release from the SPRA as to both claims. Pursuant to our contractual rights, the Company is indemnified by its customer for this amount and the customer is making payments to the government on behalf of the Company. Therefore, the Company has recorded an indemnification receivable from the customer for this amount.
On December 30, 2020, the Company received an assessment from the municipal authority in Ipatinga, Brazil alleging $1.9 million in unpaid service taxes from the period 2015 to 2020. After calculating the interest and penalties accrued, the Company estimates that the current overall potential liability for this case is approximately $5.9 million. On July 21, 2023, the Company filed the last administrative appeal against the decision that maintained the assessment and a final administrative decision is still pending. Due to the multiple defenses that are available, the Company does not believe a loss is probable.
The Company intends to continue its practice of vigorously defending itself against these tax claims under various alternatives, including judicial appeal. The Company will continue to evaluate its potential liability with regard to these claims on a quarterly basis; however, it is not possible to predict the ultimate outcome of these tax-related disputes in Brazil. No loss provision has been recorded in the Company's Condensed Consolidated Financial Statements for the disputes described above because the loss contingency is not deemed probable, and the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with Brazilian tax disputes would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Asbestos Actions
The Company is named as one of many defendants in legal actions in the U.S. alleging personal injury from exposure to airborne asbestos over the past several decades. In their suits, the plaintiffs have named as defendants, among others, many manufacturers, distributors and installers of numerous types of equipment or products that allegedly contained asbestos.
At September 30, 2024, there were approximately 17,000 pending asbestos personal injury actions filed against the Company. The vast majority of these actions were filed in the New York Supreme Court (New York County), of which the majority of such actions were on the Deferred/Inactive Docket created by the New York Supreme Court in December 2002 for all pending and future asbestos actions filed by persons who cannot demonstrate that they have a malignant condition or discernible physical impairment. A relatively small portion of cases are on the Active or In Extremis docket in New York County or on active dockets in other jurisdictions. The complaints in most of those actions generally follow a form that contains a standard demand of significant damages, regardless of the individual plaintiff's alleged medical condition, and without identifying any Company product.
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The Company will continue to vigorously defend against such claims and is confident that it will be successful in doing so. The Company has never been a producer, manufacturer or processor of asbestos fibers. Any asbestos-containing part of a Company product used in the past was purchased from a supplier and the asbestos encapsulated in other materials such that airborne exposure, if it occurred, was not harmful and is not associated with the types of injuries alleged in the pending actions.
The Company has liability insurance coverage under various primary and excess policies that the Company believes will be available, if necessary, to substantially cover any liability that might ultimately be incurred in the asbestos actions referred to above. The costs and expenses of the asbestos actions are being paid by the Company's insurers.
In view of the persistence of asbestos litigation in the U.S., the Company expects to continue to receive additional claims in the future. The Company intends to continue its practice of vigorously defending these claims and cases. At September 30, 2024, the Company has successfully dismissed approximately 28,500 cases by stipulation or summary judgment prior to trial.
It is not possible to predict the ultimate outcome of asbestos-related actions in the U.S. due to the unpredictable nature of this litigation, and no loss provision has been recorded in the Company's Condensed Consolidated Financial Statements because a loss contingency is not deemed probable or estimable. Despite this uncertainty, and although results of operations and cash flows for a given period could be adversely affected by asbestos-related actions, the Company does not expect that any costs that are reasonably possible to be incurred by the Company in connection with asbestos litigation would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Other
On November 5, 2020, a worker suffered a fatal injury at a site owned by the Company's customer, Gerdau Ameristeel US, Inc. ("Gerdau"), in Midlothian, TX. Although the Company was not directly involved in the accident, the worker was employed by a sub-contractor of a sub-contractor of the Company. On May 11, 2023, the parties completed a formal settlement agreement, settling the claims brought by the worker's family. The Company paid its insurance deductible of $5.0 million and has recorded an indemnification receivable from Gerdau for the recovery of certain losses based upon the contractual indemnity rights. On August 25, 2023, the Company initiated arbitration proceedings against Gerdau before the American Arbitration Association to enforce its contractual indemnity rights. There can be no assurances that the Company's position will ultimately prevail; however, any financial statement impact is not expected to be material.
The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by established reserves, and, if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Insurance liabilities are recorded when it is probable that a liability has been incurred for a particular event and the amount of loss associated with the event can be reasonably estimated. Insurance reserves have been estimated based primarily upon actuarial calculations and reflect the undiscounted estimated liabilities for ultimate losses, including claims incurred but not reported. Inherent in these estimates are assumptions that are based on the Company's history of claims and losses, a detailed analysis of existing claims with respect to potential value, and current legal and legislative trends. If actual claims differ from those projected by management, changes (either increases or decreases) to insurance reserves may be required and would be recorded through income in the period the change was determined. When a recognized liability has been determined to be covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Insurance claim receivables are included in Other receivables on the Company's Condensed Consolidated Balance Sheets. See Note 1, Summary of Significant Accounting Policies in Part II, Item 8 Financial Statements and Supplementary Data in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, under Accrued Insurance and Loss Reserves, for additional information.
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13. Reconciliation of Basic and Diluted Shares
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands, except per share amounts) 2024 2023 2024 2023
Income (loss) from continuing operations attributable to Enviri Corporation common stockholders $ (11,995) $ (9,663) $ (41,556) $ (28,539)
Weighted-average shares outstanding:
Weighted-average shares outstanding - basic 80,165 79,850 80,085 79,767
Dilutive effect of stock-based compensation - - - -
Weighted-average shares outstanding - diluted 80,165 79,850 80,085 79,767
Earnings (loss) from continuing operations per common share, attributable to Enviri Corporation common stockholders:
Basic $ (0.15) $ (0.12) $ (0.52) $ (0.36)
Diluted $ (0.15) $ (0.12) $ (0.52) $ (0.36)
The following average outstanding stock-based compensation units were not included in the computation of diluted earnings (loss) per share because the effect was either antidilutive or the market conditions for the performance share units were not met:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Restricted stock units 1,607 969 1,650 997
Stock appreciation rights 2,618 2,380 2,764 2,427
Performance share units 1,833 1,341 1,852 1,382
14. Derivative Instruments, Hedging Activities and Fair Value
Derivative Instruments and Hedging Activities
The Company uses derivative instruments, including foreign currency exchange forward contracts and interest rate swaps to manage certain foreign currency and interest rate exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for trading or speculative purposes. All derivative instruments are recorded on the Company's Condensed Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs, such as forward rates, interest rates, the Company's credit risk and counterparties' credit risks, and which minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the ability to observe those inputs. Foreign currency exchange forward contracts and interest rate swaps are based upon pricing models using market-based inputs (Level 2). Model inputs can be verified and valuation techniques do not involve significant management judgment.
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The fair value of outstanding derivative contracts recorded as assets and liabilities on the Company's Condensed Consolidated Balance Sheets was as follows:
(In thousands) Balance Sheet Location Fair Value of Derivatives Designated as Hedging Instruments Fair Value of Derivatives Not Designated as Hedging Instruments Total Fair Value
September 30, 2024
Asset derivatives (Level 2):
Foreign currency exchange forward contracts Other current assets $ 27 $ 275 $ 302
Total $ 27 $ 275 $ 302
Liability derivatives (Level 2):
Foreign currency exchange forward contracts Other current liabilities $ 1,296 $ 6,954 $ 8,250
Interest rate swaps Other current liabilities 1,130 - 1,130
Interest rate swaps Other liabilities 802 - 802
Total $ 3,228 $ 6,954 $ 10,182
December 31, 2023
Asset derivatives (Level 2):
Foreign currency exchange forward contracts Other current assets $ 77 $ 1,597 $ 1,674
Interest rate swaps Other current assets 1,443 - 1,443
Total $ 1,520 $ 1,597 $ 3,117
Liability derivatives (Level 2):
Foreign currency exchange forward contracts Other current liabilities $ 561 $ 8,064 $ 8,625
Interest rate swaps Other liabilities 2,150 - 2,150
Total $ 2,711 $ 8,064 $ 10,775
All of the Company's derivatives are recorded on the Condensed Consolidated Balance Sheets at gross amounts and do not offset. All of the Company's interest rate swaps and certain foreign currency exchange forward contracts are transacted under ISDA documentation. Each ISDA master agreement permits the net settlement of amounts owed in the event of default. The Company's derivative assets and liabilities subject to enforceable master netting arrangements, if offset, would have resulted in net liabilities of $1.9 million and $0.5 million at September 30, 2024 and December 31, 2023, respectively.
The effect of derivative instruments on the Company's Condensed Consolidated Statements of Comprehensive Income (Loss) was as follows:
Derivatives Designated as Hedging
Gain (Loss) Recognized in
OCI on Derivatives
Loss (Gain) Reclassified from
AOCI into Income - Effective Portion or Equity
Three Months Ended Three Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Foreign currency exchange forward contracts $ (1,188) $ 373 $ 541 $ (270)
Interest rate swaps (3,284) 2,390 (866) (825)
$ (4,472) $ 2,763 $ (325) $ (1,095)
Gain (Loss) Recognized in
OCI on Derivatives
Loss (Gain) Reclassified from
AOCI into Income - Effective Portion or Equity
Nine Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Foreign currency exchange forward contracts $ (938) $ (748) $ 44 $ 1,007
Interest rate swaps 1,394 5,655 (2,619) (1,690)
$ 456 $ 4,907 $ (2,575) $ (683)
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The location and amount of gain (loss) recognized on the Company's Condensed Consolidated Statements of Operations was as follows:
Three Months Ended
September 30
2024 2023
(In thousands) Product Revenues Interest Expense Product Revenues Interest Expense
Total amounts in the Condensed Consolidated Statement of Operations in which the effects of derivatives designated as hedging instruments are recorded $ 85,495 $ (28,813) $ 106,177 $ (27,552)
Interest rate swaps:
Gain (loss) reclassified from AOCI into income
- 866 - 825
Foreign exchange contracts:
Gain (loss) reclassified from AOCI into income
(541) - 270 -
Nine Months Ended
September 30
2024 2023
(In thousands) Product Revenues Interest Expense Product Revenues Interest Expense
Total amounts in the Condensed Consolidated Statement of Operations in which the effects of derivatives designated as hedging instruments are recorded $ 291,368 $ (84,869) $ 332,375 $ (78,956)
Interest rate swaps:
Gain (loss) reclassified from AOCI into income
- 2,619 - 1,690
Foreign exchange contracts:
Gain (loss) reclassified from AOCI into income
(44) - (1,007) -
Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in Income on Derivatives (a)
Amount of Gain (Loss) Recognized in Income on Derivatives(a)
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Foreign currency exchange forward contracts Cost of services and products sold $ (18,569) $ 12,174 $ (6,344) $ 13,739
(a) These gains (losses) offset other amounts recognized in cost of services and products sold principally as a result of intercompany or third party foreign currency exposures.
Foreign Currency Exchange Forward Contracts
The Company conducts business in multiple currencies and, accordingly, is subject to the inherent risks associated with foreign exchange rate movements. Foreign currency-denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the respective consolidated balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods.
The Company uses derivative instruments to hedge cash flows related to foreign currency fluctuations. Foreign currency exchange forward contracts outstanding are part of a worldwide program to minimize foreign currency exchange operating income and balance sheet exposure by offsetting foreign currency exposures of certain future payments between the Company and various subsidiaries, suppliers or customers. The unsecured contracts are with major financial institutions. The Company may be exposed to credit loss in the event of non-performance by the contract counterparties. The Company evaluates the creditworthiness of the counterparties and does not expect default by them. Foreign currency exchange forward contracts are used to hedge commitments, such as foreign currency debt, firm purchase commitments and foreign currency cash flows for certain export sales transactions.
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Changes in the fair value of derivatives used to hedge foreign currency denominated balance sheet items are reported directly in earnings, along with offsetting transaction gains and losses on the items being hedged. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments may be accounted for as cash flow hedges, as deemed appropriate, if the criteria for hedge accounting are met. Gains and losses on derivatives designated as cash flow hedges are deferred in AOCI, a separate component of equity, and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized currently in earnings.
The recognized gains and losses offset amounts recognized in cost of services and products sold principally as a result of intercompany or third-party foreign currency exposures. At September 30, 2024 and December 31, 2023, the notional amounts of foreign currency exchange forward contracts were $657.0 million and $633.3 million, respectively. These contracts are primarily denominated in British Pound Sterling and Euros and mature through 2027.
In addition to foreign currency exchange forward contracts, the Company designates certain loans as hedges of net investments in international subsidiaries. The Company recorded a pre-tax net gain of $0.9 million for the three months ended September 30, 2024 and a pre-tax net loss of $0.3 million for the three months ended September 30, 2023, and pre-tax net gains of $2.1 million and $1.2 million for the nine months ended September 30, 2024 and September 30, 2023, respectively, in OCI.
Interest Rate Swaps
The Company uses interest rate swaps in conjunction with certain variable rate debt issuances in order to secure a fixed interest rate. Changes in the fair value attributed to the effect of the swaps' interest spread and changes in the credit worthiness of the counter-parties are recorded in OCI and are reclassified into income as interest payments are made.
In the first quarter of 2023, the Company entered into a series of interest rate swaps with a scheduled maturity of December 2025. The swaps have the effect of converting $300.0 million of the Term Loan from a floating interest rate to a fixed interest rate and are classified as cash flow hedges. The fixed rates provided by these swaps, ranging from 4.16% to 4.21%, replace the adjusted SOFR rate in the interest calculation.
In October 2024, the Company entered into a new series of interest rate swaps that will be in effect upon the maturity of the existing interest rate swaps in December 2025 and will mature in March 2028. These forward swaps will continue to have the same effect of converting $300.0 million from the Term Loan from a floating interest rate to a fixed interest rate and will be classified as cash flow hedges. These swaps will provide fixed interest rates that range from 3.06% to 3.12% and will continue to replace the adjusted SOFR rate in the interest calculation.
Fair Value of Other Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term borrowings approximate fair value due to the short-term maturities of these assets and liabilities. At September 30, 2024 and December 31, 2023, the total fair value of long-term debt and current maturities, excluding deferred financing costs, was $1,450.2 million and $1,394.5 million, respectively, compared with a carrying value of $1,463.4 million and $1,429.0 million, respectively. Fair values for debt are based on pricing models using market-based inputs (Level 2) for similar issues or on the current rates offered to the Company for debt of the same remaining maturities.
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15. Review of Operations by Segment
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Revenues
Harsco Environmental $ 279,148 $ 285,877 $ 871,196 $ 848,659
Clean Earth 236,791 238,711 698,926 691,750
Harsco Rail 57,688 72,380 213,815 226,280
Total Revenues $ 573,627 $ 596,968 $ 1,783,937 $ 1,766,689
Operating Income (Loss) from Continuing Operations
Harsco Environmental $ 33,181 $ 17,867 $ 73,055 $ 52,885
Clean Earth 26,833 21,497 71,308 61,002
Harsco Rail (14,101) (999) (26,251) 10,270
Corporate (8,541) (9,605) (23,672) (29,795)
Total Operating Income (Loss) from Continuing Operations
$ 37,372 $ 28,760 $ 94,440 $ 94,362
Depreciation
Harsco Environmental $ 27,554 $ 28,793 $ 83,793 $ 84,707
Clean Earth 8,685 6,054 24,347 16,528
Harsco Rail 1,040 - 2,424 -
Corporate 300 550 961 1,658
Total Depreciation $ 37,579 $ 35,397 $ 111,525 $ 102,893
Amortization
Harsco Environmental $ 532 $ 1,013 $ 2,525 $ 3,020
Clean Earth 5,991 6,330 18,147 18,472
Harsco Rail 68 - 157 -
Corporate(a)
1,318 952 3,260 2,835
Total Amortization $ 7,909 $ 8,295 $ 24,089 $ 24,327
Capital Expenditures
Harsco Environmental $ 24,905 $ 20,735 $ 69,674 $ 75,826
Clean Earth 13,020 6,186 27,084 15,990
Harsco Rail 3,567 279 5,154 1,515
Corporate 82 89 182 299
Total Capital Expenditures $ 41,574 $ 27,289 $ 102,094 $ 93,630
(a) Amortization expense on Corporate relates to the amortization of deferred financing costs.
Reconciliation of Segment Operating Income to Income (Loss) From Continuing Operations before Income Taxes and Equity Income
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Segment operating income (loss) $ 45,913 $ 38,365 $ 118,112 $ 124,157
General Corporate expense (8,541) (9,605) (23,672) (29,795)
Operating income (loss) from continuing operations 37,372 28,760 94,440 94,362
Interest income 981 1,722 6,113 4,796
Interest expense (28,813) (27,552) (84,869) (78,956)
Facility fees and debt-related income (expense) (2,978) (2,806) (8,687) (7,899)
Defined benefit pension income (expense) (4,257) (5,430) (12,599) (16,159)
Income (loss) from continuing operations before income taxes and equity income $ 2,305 $ (5,306) $ (5,602) $ (3,856)
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16. Revenues
The Company recognizes revenues to depict the transfer of promised services and products to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services and products. Service revenues include CE and the service components of HE and Rail. Product revenues include portions of HE and Rail.
A summary of the Company's revenues by primary geographical markets as well as by key product and service groups is as follows:
Three Months Ended
September 30, 2024
(In thousands)
Harsco Environmental
Segment
Clean Earth
Segment
Harsco Rail
Segment
Consolidated Totals
Primary Geographical Markets (a):
North America $ 70,316 $ 236,791 $ 31,644 $ 338,751
Western Europe 108,709 - 21,294 130,003
Latin America (b)
38,195 - 247 38,442
Asia-Pacific 31,333 - 4,503 35,836
Middle East and Africa 26,327 - - 26,327
Eastern Europe 4,268 - - 4,268
Total Revenues $ 279,148 $ 236,791 $ 57,688 $ 573,627
Key Product and Service Groups:
Environmental services related to resource recovery for metals manufacturing and related logistical services $ 235,490 $ - $ - $ 235,490
Ecoproducts 36,663 - - 36,663
Environmental systems for aluminum dross and scrap processing 6,995 - - 6,995
Railway track maintenance equipment - - 19,099 19,099
After market parts and services; safety and diagnostic technology - - 23,495 23,495
Railway contracting services - - 15,094 15,094
Hazardous waste processing solutions - 194,557 - 194,557
Soil and dredged materials processing and reuse solutions - 42,234 - 42,234
Total Revenues $ 279,148 $ 236,791 $ 57,688 $ 573,627
Three Months Ended
September 30, 2023
(In thousands)
Harsco Environmental
Segment
Clean Earth
Segment
Harsco Rail
Segment
Consolidated Totals
Primary Geographical Markets (a):
North America $ 78,528 $ 238,711 $ 50,322 $ 367,561
Western Europe 109,473 - 20,294 129,767
Latin America (b)
44,351 - 700 45,051
Asia-Pacific 25,787 - 1,064 26,851
Middle East and Africa 22,673 - - 22,673
Eastern Europe 5,065 - - 5,065
Total Revenues $ 285,877 $ 238,711 $ 72,380 $ 596,968
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Three Months Ended
September 30, 2023
(In thousands)
Harsco Environmental
Segment
Clean Earth
Segment
Harsco Rail
Segment
Consolidated Totals
Key Product and Service Groups:
Environmental services related to resource recovery for metals manufacturing and related logistical services $ 234,274 $ - $ - $ 234,274
Ecoproducts 43,841 - - 43,841
Environmental systems for aluminum dross and scrap processing 7,762 - - 7,762
Railway track maintenance equipment - - 24,531 24,531
After market parts and services; safety and diagnostic technology - - 31,310 31,310
Railway contracting services - - 16,539 16,539
Hazardous waste processing solutions - 194,927 - 194,927
Soil and dredged materials processing and reuse solutions - 43,784 - 43,784
Total Revenues $ 285,877 $ 238,711 $ 72,380 $ 596,968
Nine Months Ended
September 30, 2024
(In thousands)
Harsco Environmental
Segment
Clean Earth
Segment
Harsco Rail
Segment
Consolidated Totals
Primary Geographical Markets (a):
North America $ 238,553 $ 698,926 $ 129,119 $ 1,066,598
Western Europe 328,604 - 61,318 389,922
Latin America (b)
122,396 - 3,205 125,601
Asia-Pacific 88,593 - 20,173 108,766
Middle East and Africa 79,858 - - 79,858
Eastern Europe 13,192 - - 13,192
Total Revenues $ 871,196 $ 698,926 $ 213,815 $ 1,783,937
Key Product and Service Groups:
Environmental services related to resource recovery for metals manufacturing and related logistical services $ 747,303 $ - $ - $ 747,303
Ecoproducts 107,190 - - 107,190
Environmental systems for aluminum dross and scrap processing 16,703 - - 16,703
Railway track maintenance equipment - - 79,535 79,535
After-market parts and services; safety and diagnostic technology
- - 89,502 89,502
Railway contracting services - - 44,778 44,778
Hazardous waste processing solutions - 581,341 - 581,341
Soil and dredged materials processing and reuse solutions - 117,585 - 117,585
Total Revenues $ 871,196 $ 698,926 $ 213,815 $ 1,783,937
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Nine Months Ended
September 30, 2023
(In thousands)
Harsco Environmental
Segment
Clean Earth
Segment
Harsco Rail
Segment
Consolidated Totals
Primary Geographical Markets (a):
North America $ 238,617 $ 691,750 $ 163,934 $ 1,094,301
Western Europe 318,177 - 44,858 363,035
Latin America (b)
127,486 - 1,865 129,351
Asia-Pacific 87,087 - 15,623 102,710
Middle East and Africa 62,195 - - 62,195
Eastern Europe 15,097 - - 15,097
Total Revenues $ 848,659 $ 691,750 $ 226,280 $ 1,766,689
Key Product and Service Groups:
Environmental services related to resource recovery for metals manufacturing and related logistical services $ 706,273 $ - $ - $ 706,273
Ecoproducts 122,747 - - 122,747
Environmental systems for aluminum dross and scrap processing 19,639 - - 19,639
Railway track maintenance equipment - - 98,771 98,771
After-market parts and services; safety and diagnostic technology
- - 93,633 93,633
Railway contracting services - - 33,876 33,876
Hazardous waste processing solutions - 578,545 - 578,545
Soil and dredged materials processing and reuse solutions - 113,205 - 113,205
Total Revenues $ 848,659 $ 691,750 $ 226,280 $ 1,766,689
(a) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
(b) Includes Mexico.
The Company may receive payments in advance of earning revenue (advances on contracts), which are included in Current portion of advances on contracts and Other liabilities on the Condensed Consolidated Balance Sheets. The Company may recognize revenue in advance of being able to contractually invoice the customer (contract assets), which is included in Current portion of contract assets and Other assets on the Condensed Consolidated Balance Sheets. Contract assets are transferred to Trade accounts receivable, net, when the right to payment becomes unconditional. Contract assets and advances on contracts are reported as a net position, on a contract-by-contract basis, at the end of each reporting period. These instances are primarily related to Rail.
The Company had contract assets totaling $107.9 million and $86.9 million at September 30, 2024 and December 31, 2023, respectively. The Company had advances on contracts totaling $28.3 million and $38.6 million at September 30, 2024 and December 31, 2023, respectively. During the three and nine months ended September 30, 2024, the Company recognized $4.8 million and $25.3 million, respectively, of revenue related to amounts previously included in advances on contracts. During the three and nine months ended September 30, 2023, the Company recognized revenues of $13.3 million and $35.8 million, respectively, related to amounts previously included in advances on contracts.
At September 30, 2024, HE had remaining, fixed, unsatisfied performance obligations where the expected contract duration exceeds one year totaling $73.7 million. Of this amount, $21.7 million is expected to be fulfilled by September 30, 2025, $17.7 million by September 30, 2026, $14.1 million by September 30, 2027, $11.8 million by September 30, 2028 and the remainder thereafter. These amounts exclude any variable fees, fixed fees subject to indexation and any performance obligations expected to be satisfied within one year.
At September 30, 2024, Rail had remaining, fixed, unsatisfied performance obligations where the expected contract duration exceeds one year totaling $119.0 million. Of this amount, $54.9 million is expected to be fulfilled by September 30, 2025, $27.3 million by September 30, 2026, $21.0 million by September 30, 2027, $6.9 million by September 30, 2028 and the remainder thereafter. These amounts exclude any variable fees, fixed fees subject to indexation and any performance obligations expected to be satisfied within one year.
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Rail is currently manufacturing highly-engineered equipment under large long-term fixed-price contracts with SBB, Network Rail, and Deutsche Bahn. As previously disclosed, the Company recognized estimated forward loss provisions in 2021, 2022 and 2023 related to these contracts due to several factors, such as material and labor cost inflation, supply chain delays, the bankruptcy of a key vendor and increased engineering efforts.
For the Network Rail contract, the Company recorded an additional loss provision of $11.2 million in the third quarter of 2024, primarily related to delays in the estimated delivery of the machines and increased engineering and manufacturing costs primarily as a result of design changes. For the nine months ended September 30, 2024, the forward loss provision totaled $13.3 million. It is possible there may be additional delays in the project requiring additional costs to be recorded in the future, which could have a material impact on the Company's results in that period. During the nine months ended September 30, 2023, the Company reversed a portion of its previous estimated loss provision adjustment in the amount of $23.5 million. The favorable adjustment was the result of an amendment to the contract with Network Rail which extended the delivery schedule for the machines and reduced the estimate of liquidated damages. The majority of the reduction in liquidated damages was recorded as an increase to revenue and contract assets. Partially offsetting this were higher estimated material, engineering and labor costs due to additional experience gained during the manufacturing process.
For the Deutsche Bahn contract, the Company recorded an additional loss provision of $7.2 million during the nine months ended September 30, 2024 related to supplier price increases, challenges with supplier quality on key components and increased engineering efforts that exceeded previous estimates. During the third quarter of 2023, the Company recorded an additional forward loss provision of $2.4 million. For the nine months ended September 30, 2023, the forward loss provision totaled $10.8 million. The additional loss provisions were due to increased costs related to a critical supplier that had filed for bankruptcy in 2022 and ceased operations during the second quarter of 2023, as well as an increase in estimated component costs and engineering costs.
For the SBB contract, during the third quarter of 2024, the Company recorded a favorable adjustment of $0.7 million. For the nine months ended September 30, 2024, the net reduction totaled $0.5 million. For the nine months ended September 30, 2023, the Company recorded an additional forward loss provision of $6.1 million due to increased costs related to 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 that could be material. 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.
As of September 30, 2024, the contracts with Network Rail, Deutsche Bahn and SBB are 63%, 46% and 90% complete, respectively, based on costs incurred.
The Company provides assurance type warranties primarily for product sales at Rail. These warranties are typically not priced or negotiated separately (there is no option to separately purchase the warranty) or the warranty does not provide customers with a service in addition to the assurance that the product complies with agreed-upon specifications. Accordingly, such warranties do not represent separate performance obligations.
17. Other Expense (Income), Net
The major components of this Condensed Consolidated Statements of Operations caption were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Employee termination benefit costs $ 1,316 $ 1,210 $ 5,926 $ 1,377
Other costs (income) for exit activities (a)
518 1,182 1,405 (6,306)
Impaired asset write-downs 753 88 5,365 88
Net gains on sale of assets
(2,547) (20) (6,096) (250)
Other - 405 - 1,039
Other (income) expenses, net $ 40 $ 2,865 $ 6,600 $ (4,052)
(a) The nine months ended September 30, 2023 included a $9.8 million net gain recognized related to a lease modification that resulted in lease incentive for the Company to relocate an HE site prior to the end of the expected lease term.
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18. Components of Accumulated Other Comprehensive Loss
AOCI is included on the Condensed Consolidated Statements of Stockholders' Equity. The components of AOCI, net of the effect of income taxes, and activity for the nine months ended September 30, 2023 and 2024 were as follows:
Components of AOCI, Net of Tax
(In thousands) Cumulative Foreign Exchange Translation Adjustments Effective Portion of Derivatives Designated as Hedging Instruments Cumulative Unrecognized Actuarial Losses on Pension Obligations Unrealized Gain (Loss) on Marketable Securities Total
Balance at December 31, 2022
$ (213,104) $ 157 $ (354,699) $ 10 $ (567,636)
OCI before reclassifications 1,902 (a) 3,671 (b) (3,433) (a) 2 2,142
Amounts reclassified from AOCI, net of tax - (547) 13,651 - 13,104
Total OCI 1,902 3,124 10,218 2 15,246
Less: OCI attributable to noncontrolling interests 2,056 - - - 2,056
OCI attributable to Enviri Corporation 3,958 3,124 10,218 2 17,302
Balance at September 30, 2023
$ (209,146) $ 3,281 $ (344,481) $ 12 $ (550,334)
Components of AOCI, Net of Tax
(In thousands) Cumulative Foreign Exchange Translation Adjustments Effective Portion of Derivatives Designated as Hedging Instruments Cumulative Unrecognized Actuarial Losses on Pension Obligations Unrealized Gain (Loss) on Marketable Securities Total
Balance at December 31, 2023 $ (183,499) $ (470) $ (355,740) $ 15 $ (539,694)
OCI before reclassifications (4,355) (a) 304 (b) (13,832) (a) 5 (17,878)
Amounts reclassified from AOCI, net of tax - (1,983) 14,160 - 12,177
Total OCI (4,355) (1,679) 328 5 (5,701)
Less: OCI attributable to noncontrolling interests (225) - - - (225)
OCI attributable to Enviri Corporation (4,580) (1,679) 328 5 (5,926)
Balance at September 30, 2024 $ (188,079) $ (2,149) $ (355,412) $ 20 $ (545,620)
(a) Principally foreign currency fluctuation.
(b) Net change from periodic revaluations.
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Amounts reclassified from AOCI were as follows:
(In thousands) Three Months Ended Nine Months Ended Location on the Condensed Consolidated Statements of Operations
September 30 September 30
2024 2023 2024 2023
Amortization of cash flow hedging instruments:
Foreign currency exchange forward contracts $ 541 $ (270) $ 44 $ 1,007 Product revenues
Interest rate swaps (866) (825) (2,619) (1,690) Interest expense
Total before income taxes
(325) (1,095) (2,575) (683)
Income taxes 63 229 592 136
Total reclassification of cash flow hedging instruments, net of tax $ (262) $ (866) $ (1,983) $ (547)
Amortization of defined benefit pension items (c):
Actuarial losses $ 4,909 $ 4,783 $ 14,594 $ 14,183 Defined benefit pension income (expense)
Prior service costs 119 116 354 345 Defined benefit pension income (expense)
Total before income taxes
5,028 4,899 14,948 14,528
Income taxes (263) (292) (788) (877)
Total reclassification of defined benefit pension items, net of tax $ 4,765 $ 4,607 $ 14,160 $ 13,651
(c) These AOCI components are included in the computation of net periodic pension costs. See Note 10, Employee Benefit Plans, for additional details.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements as well as the audited consolidated financial statements of the Company, including the notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 which includes additional information about the Company's critical accounting policies, contractual obligations, practices and the transactions that support the financial results, and provides a more comprehensive summary of the Company's outlook, trends and strategies for 2024 and beyond.
Forward-Looking Statements
The nature of the Company's business, together with the number of countries in which it operates, subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the "safe harbor" provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein. Forward-looking statements contained herein could include, among other things, statements about management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities and expectations regarding growth, sales, cash flows, and earnings. Forward-looking statements can be identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "outlook," "plan", "contemplate", "project", target" or other comparable terms.
Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to:
(1)the Company's ability to successfully enter into new contracts and complete new acquisitions, divestitures, or strategic ventures in the time-frame contemplated or at all, including the Company's ability to divest the Rail business in the future;
(2)the Company's inability to comply with applicable environmental laws and regulations;
(3)the Company's inability to obtain, renew, or maintain compliance with its operating permits or license agreements;
(4)various economic, business, and regulatory risks associated with the waste management industry;
(5)the seasonal nature of the Company's business;
(6)risks caused by customer concentration, the long-term nature of customer contracts, and the competitive nature of the industries in which the Company operates;
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(7)the outcome of any disputes with customers, contractors and subcontractors;
(8)the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged or have inadequate liquidity) to maintain their credit availability;
(9)higher than expected claims under the Company's insurance policies, or losses that are uninsurable or that exceed existing insurance coverage;
(10)market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs;
(11)the Company's ability to negotiate, complete, and integrate strategic transactions and joint ventures with strategic partners;
(12)the Company's ability to effectively retain key management and employees, including due to unanticipated changes to demand for the Company's services, disruptions associated with labor disputes, and increased operating costs associated with union organizations;
(13)the Company's inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates;
(14)failure to effectively prevent, detect or recover from breaches in the Company's cybersecurity infrastructure;
(15)changes in the worldwide business environment in which the Company operates, including changes in general economic and industry conditions and cyclical slowdowns;
(16)fluctuations in exchange rates between the U.S. dollar and other currencies in which the Company conducts business;
(17)unforeseen business disruptions in one or more of the many countries in which the Company operates due to changes in economic conditions, changes in governmental laws and regulations, including environmental, occupational health and safety, tax and import tariff standards and amounts; political instability, civil disobedience, armed hostilities, public health issues or other calamities;
(18)liability for and implementation of environmental remediation matters;
(19)product liability and warranty claims associated with the Company's operations;
(20)the Company's ability to comply with financial covenants and obligations to financial counterparties;
(21)the Company's outstanding indebtedness and exposure to derivative financial instruments that may be impacted by, among other factors, changes in interest rates;
(22)tax liabilities and changes in tax laws;
(23)changes in the performance of equity and bond markets that could affect, among other things, the valuation of the assets in the Company's pension plans and the accounting for pension assets, liabilities and expenses;
(24)risk and uncertainty associated with intangible assets; and
(25)the other risk factors listed from time to time in the Company's SEC reports.
A further discussion of these, along with other potential risk factors, can be found in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2023. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements except as may be required by law.
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Executive Overview
The Company is a market-leading, global provider of environmental solutions for industrial, retail and medical waste streams. The name and brand identity of Enviri reflect the Company's transformation over the past four years into an environmental solutions company that provides services to manage, recycle and beneficially reuse waste and byproduct materials across many industries. The Company has locations in approximately 30 countries, including the U.S. The Company was incorporated in 1956.
The Company's operations consist of three reportable segments: Harsco Environmental, Clean Earth and Harsco Rail. HE operates primarily under long-term contracts, providing critical environmental services and material processing to the global steel and metals industries, including zero waste solutions for manufacturing byproducts within the metals industry. CE provides specialty waste processing, treatment, recycling and beneficial reuse solutions for customers in the industrial, retail, healthcare and construction industries across a variety of waste needs, including hazardous, non-hazardous and contaminated soils and dredged materials. Rail is a provider of highly engineered maintenance equipment, after-market parts and safety and diagnostic systems and contracting solutions, which support railroad and transit customers worldwide.
The Company's Consolidated Financial Statements previously included the operating results of Rail as discontinued operations in the Consolidated Statements of Operations and the carrying value of the assets and liabilities of Rail were previously classified as Assets held-for-sale and Liabilities of assets held-for sale on the Consolidated Balance Sheets. However, since the sales process was paused and the held-for-sale criteria were no longer met as of March 31, 2024, Rail's operating results have been reclassified to continuing operations in the Consolidated Statements of Operations and its assets and liabilities have been reclassified to held-and-used in the Consolidated Balance Sheets for all periods presented.
As part of its asset sale goal, the Company completed the sale of Reed on August 29, 2024. Together with the sale of Performix during the second quarter of 2024, the Company has recognized $57.7 million of proceeds from the sale of businesses during the nine months ended September 30, 2024. Refer to Note 3, Discontinued Operations and Dispositions in Part I, Item 1, Financial Statements for more information related to these transactions.
In September 2024, the Company amended its Senior Secured Credit Facilities to, among other things, extend the term of the Revolving Credit Facility to September 5, 2029, adjust the limit to $625.0 million and increase certain levels of its net debt to consolidated adjusted EBITDA ratio. In addition, the Company retained $50.0 million of its existing revolving commitments which mature on March 10, 2026. Refer to Note 9, Debt and Credit Agreements in Part I, Item 1, Financial Statements for more information related to this amendment.
In October 2024, the Company renewed the AR Facility for a three-year term expiring in October 2027. This facility is discussed further in Note 4, Accounts Receivable and Note Receivable in Part I, Item 1, Financial Statements.
The Company maintains a positive long-term outlook across the Company supported by favorable underlying growth characteristics in its businesses and investments by the Company to further supplement growth. The Company's view for 2024 and beyond is supported by the below factors, which should be considered in the context of other risks, trends and strategies in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
•HE: 2024 operating results are expected to decrease when compared with 2023 results, as the impact of foreign currency, the sale of certain operating businesses, including Performix and Reed, lower commodity prices and site exits or closures are expected to be only partially offset by higher service pricing, net of inflation, as well as operational improvement initiatives and higher environmental services demand at certain sites, including those linked to growth investments and new contracts. The global steel market has experienced a period of volatility in the recent past due to the Russia-Ukraine conflict and the resulting energy crisis in Europe, as well as inventory management through the steel industry supply-chain and a change to the economic conditions due to rising interest rates. Underlying business conditions are expected to stabilize in the future and, over the longer term, the Company expects HE to grow as a result of economic growth that supports higher global steel consumption, as well as investments and innovation that support the environmental solutions needs of customers.
•CE: 2024 operating results are anticipated to improve compared to 2023 as a result of higher services pricing, net of inflation, cost and operational improvements and an increase in environmental services demand across certain end-markets. These benefits will be partially offset by certain favorable items, including the settlement of a pricing dispute with a customer, that occurred in 2023 and are not expected to repeat in 2024. Longer-term, the Company expects this segment to benefit from positive underlying market trends, supported by increased environmental regulation, further growth opportunities, lower-than-peer capital requirements and its attractive asset position, as well as from the less cyclical and more recurring nature of this business.
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•Rail: 2024 operating results, exclusive of the remeasurement of long-lived asset charge and the estimated forward loss provisions for the Network Rail, Deutsche Bahn and SBB contracts, are expected to improve from the prior year, as a result of higher global demand for rail maintenance equipment, technology products and contracted services. These benefits will be partially offset by lower contributions from after-market parts, resulting from lower volumes and a less favorable product mix. More broadly, Rail is supported by a strong backlog and the longer-term outlook for this business remains positive, supported by future infrastructure investments, economic development in emerging economies, rail electrification in certain geographies, safety awareness and automation.
Results of Operations
Amounts included in this Part I. Item 2. Results of Operations are rounded in millions and all percentages are calculated on actual amounts. As a result, minor differences may exist due to rounding.
Segment Results
Three Months Ended Nine Months Ended
September 30 September 30
(in millions, except percentages)
2024 2023 2024 2023
Revenues:
Harsco Environmental $ 279.1 $ 285.9 $ 871.2 $ 848.7
Clean Earth 236.8 238.7 698.9 691.8
Harsco Rail 57.7 72.4 213.8 226.3
Total Revenues $ 573.6 $ 597.0 $ 1,783.9 $ 1,766.7
Operating income (loss):
Harsco Environmental $ 33.2 $ 17.9 $ 73.1 $ 52.9
Clean Earth 26.8 21.5 71.3 61.0
Harsco Rail (14.1) (1.0) (26.3) 10.3
Corporate (8.5) (9.6) (23.7) (29.8)
Total operating income (loss) $ 37.4 $ 28.8 $ 94.4 $ 94.4
Operating margin:
Harsco Environmental 11.9 % 6.2 % 8.4 % 6.2 %
Clean Earth 11.3 % 9.0 % 10.2 % 8.8 %
Harsco Rail (24.4) % (1.4) % (12.3) % 4.5 %
Consolidated operating margin 6.5 % 4.8 % 5.3 % 5.3 %
Harsco Environmental Segment:
Significant Effects on Revenues (in millions)
Three Months Ended Nine Months Ended
Revenues - September 30, 2023
$ 285.9 $ 848.7
Net effects of price/volume changes, primarily attributable to volume changes and services mix
21.3 61.1
Net impact of new and lost contracts (6.3) 0.4
Impact of divestitures
(15.4) (22.6)
Impact of foreign currency translation (6.4) (16.4)
Revenues - September 30, 2024
$ 279.1 $ 871.2
The following factors contributed to the changes in operating income during the three and nine months ended September 30, 2024.
Factors Positively Affecting Operating Income:
•Higher revenues from environmental service contracts during the three and nine months ended September 30, 2024, partially due to higher overall service levels at certain sites, as well as revenues from new contracts, when compared to the prior year, partially offset by higher operating costs at certain sites.
•Net gains of $8.2 million and $10.0 million recognized during the three and nine months ended September 30, 2024, respectively, related to the divestitures of Reed and Performix.
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•The prior year's operating income included an impairment charge of $14.1 million recorded during the nine months ended September 30, 2023 related to abandoned equipment at an HE site in China, compared to asset impairment charges totaling $5.3 million recorded during the nine months ended September 30, 2024, primarily related to the loss of a customer contract in Europe.
•An accounts receivable provision of $5.3 million was recorded during the three and nine months ended September 30, 2023 related to a customer in the Middle East that had idled operations.
Factors Negatively Impacting Operating Income:
•The nine months ended September 30, 2023 included a $9.8 million net gain related to a lease modification that resulted in a lease incentive for a site relocation in the U.S., offset by relocation costs incurred, which did not repeat in the nine months ended September 30, 2024.
•Higher selling, general and administrative expenses ("SG&A") of $2.5 million and $8.1 million during the three and nine months ended September 30, 2024, respectively, including an increase in the provision for expected credit losses of $1.6 million and $2.1 million for the three and nine months ended September 30, 2024, respectively, which excludes the $5.3 million accounts receivable provision in 2023.
•The impact of foreign currency translation decreased operating income by $1.4 million and $4.2 million during the three and nine months ended September 30, 2024, respectively, when compared to the prior periods.
Clean Earth Segment:
Significant Effects on Revenues (in millions)
Three Months Ended Nine Months Ended
Revenues - September 30, 2023
$ 238.7 $ 691.8
Net effects of price/volume changes, primarily attributable to pricing changes
(1.9) 13.1
Impact of pricing settlement - (6.0)
Revenues - September 30, 2024
$ 236.8 $ 698.9
The following factors contributed to the changes in operating income during the three and nine months ended September 30, 2024.
Factors Positively Affecting Operating Income:
•Favorable changes in revenues attributable to the hazardous waste business of $1.2 million and $15.0 million for the three and nine months ended September 30, 2024, respectively, when compared to the three and nine months ended September 30, 2023, which are primarily related to pricing and mix, including hazardous soil projects, and operational cost reduction initiatives, partially offset by decreased revenues from reduced volumes from certain industries and cost increases as a result of inflation, primarily from labor costs, during the three and nine months ended September 30, 2024.
•Higher volumes processed in the soil and dredged materials business at certain sites, net of lower volumes at certain sites, led to a net increase in operating income of $0.5 million and $2.4 million during the three and nine months ended September 30, 2024, respectively, when compared to the three and nine months ended September 30, 2023.
•SG&A decreased $3.5 million and $0.6 million during the three and nine months ended September 30, 2024 from the same periods in 2023, mainly as a result of favorable adjustments to the Company's provision for expected credit losses recorded during 2024 and a reserve for a legal settlement in the third quarter of 2023, offset by higher compensation costs and professional fees incurred during the three and nine months ended September 30, 2024.
Factors Negatively Impacting Operating Income:
•The prior year's operating income was impacted by $6.0 million related to the settlement of a pricing dispute over services performed in prior periods in the hazardous waste business recognized during the nine months ended September 30, 2023, which did not recur in the nine months ended September 30, 2024.
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Harsco Rail Segment:
Significant Effects on Revenue (in millions) Three Months Ended Nine Months Ended
Revenues - September 30, 2023
$ 72.4 $ 226.3
Net effect of price/volume changes, primarily attributable to volume changes (9.9) 7.5
Change in revenue adjustments as a result of certain estimated forward loss provisions (a)
(5.4) (20.4)
Impact of foreign currency translation 0.6 0.4
Revenues - September 30, 2024
$ 57.7 $ 213.8
(a) Includes principally Network Rail, Deutsche Bahn and SBB contracts.
The following factors contributed to the changes in operating income (loss) during the three and nine months ended September 30, 2024.
Factors Positively Affecting Operating Income:
•A favorable mix from the sale of rail track maintenance equipment, exclusive of the long-term contracts with Network Rail, Deutsche Bahn and SBB, of $3.5 million during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
•An increase from the prior year of $3.3 million from railway contracting services during the nine months ended September 30, 2024.
•Favorable mix and volume from the sale of safety and diagnostics technology systems which resulted in an increase of $2.2 million during the nine months ended September 30, 2024 from the same period in 2023.
Factors Negatively Impacting Operating Income:
•An unfavorable net change in forward estimated loss provisions during the three and nine months ended September 30, 2024 of $7.7 million and $24.1 million, respectively, related principally to the Company's long-term contracts with Network Rail, Deutsche Bahn and SBB, when compared to the three and nine months ended September 30, 2023. See Note 16, Revenues in Part I, Financial Statements for further discussion.
•The nine months ended September 30, 2024 includes a charge for the remeasurement of long-lived assets for $10.7 million related to the depreciation and amortization expense that would have been recognized during the periods that Rail's assets were classified as held-for-sale, had the assets been continuously classified as held-for-use.
•An unfavorable mix of after-market part sales for the three and nine months ended September 30, 2024 that resulted in a decrease of operating income of $0.4 million and $4.6 million, respectively, when compared to the same periods in the prior year.
•SG&A increased by $1.7 million and $4.6 million during the three and nine months ended September 30, 2024, when compared to the three and nine months ended September 30, 2023, primarily from higher compensation costs and agent commission fees.
General Corporate:
Operating income (loss) from continuing operations for the nine months ended September 30, 2024 was also positively impacted by a $3.3 million net gain on sale of assets contributed by Corporate.
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Consolidated Results
September 30
Three Months Ended Nine Months Ended
(in millions, except per share amounts and percentages) 2024 2023 2024 2023
Total revenues $ 573.6 $ 597.0 $ 1,783.9 $ 1,766.7
Cost of services and products sold 454.7 470.9 1,413.2 1,397.7
Selling, general and administrative expenses 89.2 93.5 266.8 262.2
Research and development expenses 0.9 0.9 2.7 2.4
Property, plant and equipment impairment charge - - - 14.1
Remeasurement of long-lived assets
- - 10.7 -
Gain on sale of businesses, net
(8.6) - (10.5) -
Other expense (income), net - 2.9 6.6 (4.1)
Operating income (loss) from continuing operations 37.4 28.8 94.4 94.4
Interest income 1.0 1.7 6.1 4.8
Interest expense (28.8) (27.6) (84.9) (79.0)
Facility fees and debt-related income (expense) (3.0) (2.8) (8.7) (7.9)
Defined benefit pension income (expense) (4.3) (5.4) (12.6) (16.2)
Income (loss) from continuing operations before income taxes and equity income 2.3 (5.3) (5.6) (3.9)
Income tax benefit (expense) from continuing operations (13.4) (3.5) (31.4) (26.8)
Equity income (loss) of unconsolidated entities, net - (0.2) (0.1) (0.6)
Income (loss) from continuing operations (11.1) (9.0) (37.1) (31.3)
Income (loss) from discontinued businesses (1.6) (1.5) (4.3) (4.4)
Income tax benefit (expense) related to discontinued operations 0.4 0.4 1.1 1.1
Income (loss) from discontinued operations, net of tax (1.2) (1.1) (3.2) (3.2)
Net income (loss) (12.3) (10.1) (40.2) (34.5)
Total other comprehensive income (loss) 8.2 (6.3) (5.7) 15.2
Total comprehensive income (loss) (4.1) (16.4) (45.9) (19.3)
Diluted earnings (loss) per common share from continuing operations attributable to Enviri Corporation common stockholders $ (0.15) $ (0.12) $ (0.52) $ (0.36)
Effective income tax rate for continuing operations 583.0 % (65.9) % (560.0) % (696.2) %
Comparative Analysis of Consolidated Results
Total Revenues
Revenues for the three months ended September 30, 2024 decreased by $23.3 million, or 3.9%, from the three months ended September 30, 2023. Revenues for the nine months ended September 30, 2024 increased by $17.2 million, or 1.0%, from the nine months ended September 30, 2023. Foreign currency translation decreased revenues by $5.8 million and $16.0 million for the three and nine months ended September 30, 2024, respectively, compared with the same periods in the prior year. Refer to the discussion of segment results above for information pertaining to factors positively affecting and negatively impacting revenues.
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Cost of Services and Products Sold
Cost of services and products sold for the three months ended September 30, 2024 decreased $16.2 million, or 3.4%, from the three months ended September 30, 2023. Cost of services and products sold for the nine months ended September 30, 2024 increased by $15.6 million, or 1.1%, from the nine months ended September 30, 2023. The changes in cost of services and products sold were attributable to the following significant items:
September 30, 2024
(in millions)
Three Months
Ended 		Nine Months
Ended
Change in costs due to changes in revenue volume and mix
$ (17.2) $ 10.1
Changes in costs from depreciation expense
3.3 10.4
Impact of foreign currency translation (4.6) (12.4)
Other 2.3 7.5
Total change in cost of services and products sold - 2024 vs. 2023
$ (16.2) $ 15.6
Selling, General and Administrative Expenses
SG&A decreased for the three months ended September 30, 2024 by $4.3 million, or 4.6%, from the three months ended September 30, 2023. The three months ended September 30, 2024 included a $7.4 million decrease in the Company's provision for expected credit losses, mainly driven by HE and CE, partially offset by higher compensation costs of $3.5 million from HE, CE and Rail, when compared to the three months ended September 30, 2023.
SG&A for the nine months ended September 30, 2024 increased by $4.6 million, or 1.7%, from September 30, 2023. This increase was primarily due to higher compensation costs of $7.4 million, contributed mostly by CE, HE and Rail, as well as a $7.1 million increase in professional fees, contributed mainly by CE and Corporate, partially offset by SG&A decreases of $7.3 million related to changes in the Company's provision for expected credit losses in CE and HE and a $2.0 million legal settlement related to CE in 2023, not repeated in 2024.
Property, Plant and Equipment Impairment Charge
During the three months ended June 30, 2023, the Company recorded an impairment charge of $14.1 million in the HE segment. No such charge was recorded during the three and nine months ended September 30, 2024. See Note 6, Property, Plant and Equipment in Part I, Financial Statements for further discussion regarding the impairment.
Remeasurement of Long-Lived Assets
During the nine months ended September 30, 2024, the Company recorded $10.7 million in depreciation and amortization expense for Rail's property, plant and equipment and intangible assets that were previously classified in Assets held-for-sale and have been reclassified into its respective caption for assets-held-for-use on the Company's Consolidated Balance Sheets. This amount includes all of the depreciation and amortization expense that would have been recognized during the periods that these assets were classified as held-for-sale.
See Note 3, Discontinued Operations and Dispositions in Part I, Financial Statements for further discussion.
Gain on Sale of Businesses, Net
During the three and nine months ended September 30, 2024, the Company recorded net pre-tax gains of $8.6 million and $10.5 million, respectively, related to the dispositions of Reed on August 29, 2024 and Performix on April 1, 2024. See Note 3, Discontinued Operations and Dispositions in Part I, Financial Statements for further discussion.
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Other (Income) Expenses, Net
The major components of this Condensed Consolidated Statements of Operations caption are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2024 2023 2024 2023
Employee termination benefit costs $ 1,316 $ 1,210 $ 5,926 $ 1,377
Other (income) costs for exit activities (a)
518 1,182 1,405 (6,306)
Impaired asset write-downs 753 88 5,365 88
Net gains on sale of assets
(2,547) (20) (6,096) (250)
Other - 405 - 1,039
Other (income) expenses, net $ 40 $ 2,865 $ 6,600 $ (4,052)
(a) Included a $9.8 million net gain related to a lease modification that resulted in a lease incentive to the Company during the nine months ended September 30, 2023, as discussed above in the HE segment results.
Interest Expense
Interest expense during the three and nine months ended September 30, 2024 increased by $1.3 million and $5.9 million, respectively, compared with the three and nine months ended September 30, 2023. This increase is mainly driven by higher average borrowings during the nine months ended September 30, 2024 from the Company's Senior Secured Credit Facilities and finance leases, when compared to the nine months ended September 30, 2023.
Interest Income
Interest income was $1.0 million and $6.1 million for the three and nine months ended September 30, 2024, respectively, compared to $1.7 million and $4.8 million for the three and nine months ended September 30, 2023, respectively. The nine months ended September 30, 2024 included a $2.7 million pre-tax gain recognized from the settlement the Company's note receivable from the buyer of IKG, which was settled in April 2024. No such income was received during the nine months ended September 30, 2023. See Note 4, Accounts Receivable and Notes Receivable, in Part I, Item 1, Financial Statements for additional details.
Facility Fees and Debt-Related Income (Expense)
The Company recognized facility fee expense mostly related to the Company's AR Facility of $3.0 million and $8.7 million during the three and nine months ended September 30, 2024, respectively, compared to $2.8 million and $7.9 million recognized during the three and nine months 2023, respectively. See Note 9, Debt and Credit Agreements, in Part I, Item 1, Financial Statements.
Defined Benefit Pension Income (Expense)
Defined benefit pension expense was $4.3 million and $5.4 million for the three months ended September 30, 2024 and 2023, respectively. Defined benefit pension expense was $12.6 million and $16.2 million for the nine months ended September 30, 2024 and 2023, respectively. This expense decrease is primarily related to a higher expected return on plan assets in the current year, compared to 2023, due to higher plan asset balances at December 31, 2023.
Income Tax Expense
Income tax expense from continuing operations for the three and nine months ended September 30, 2024 was $13.4 million and $31.4 million, respectively, compared to $3.5 million and $26.8 million for the three and nine months ended September 30, 2023, respectively. The increase in income tax expense during the three months ended September 30, 2024 primarily includes $5.7 million of tax expense related to the net gain from the Reed divestiture, the increased disallowed interest expense in the U.S. resulting from reduced income, the withholding tax on cash repatriation in certain foreign jurisdictions, as well as a change in the geographical mix of income, partially offset by a tax benefit resulting from an $11.2 million additional estimated forward loss provision recorded for Rail's Network Rail contract.
The income tax expense increase during the nine months ended September 30, 2024 primarily includes $5.7 million of tax expense related to the net gain from the Reed divestiture, the increased disallowed interest expense in the U.S. resulting from reduced income, the withholding tax on cash repatriation in certain foreign jurisdictions, as well as a change in the geographical mix of income, partially offset by the net tax benefit resulting from the year-over-year change in the forward loss provision recorded for Rail's Network Rail contract of $36.8 million and a $3.7 million valuation allowance for a deferred tax asset in a certain foreign jurisdiction in 2023, not recurring in 2024.
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Income (Loss) from Continuing Operations
Loss from continuing operations was $11.1 million and $37.1 million for the three and nine months ended September 30, 2024, respectively, and $9.0 million and $31.3 million for the three and nine months ended September 30, 2023, respectively. The primary drivers for these changes are noted above.
Income (Loss) from Discontinued Businesses
The Company has incurred incremental costs that are directly attributable to retained contingent liabilities of previously disposed businesses and are included in Income (loss) from discontinued businesses.
Total Other Comprehensive Income (Loss)
Total other comprehensive income (loss) was $8.2 million and $(5.7) million for the three and nine months ended September 30, 2024, respectively, compared to other comprehensive income (loss) of $(6.3) million and $15.2 million for the three and nine months ended September 30, 2023, respectively. The primary driver of this change was the fluctuation of the U.S. dollar against certain currencies during the three and nine months ended September 30, 2024, inclusive of the impact of foreign currency translation of cumulative unrecognized actuarial losses on the Company's pension obligations.
Liquidity and Capital Resources
Cash Flow Summary
The Company currently expects to have sufficient financial liquidity and borrowing capacity to support the strategies within each of its businesses and its current operating and debt service needs. The Company currently expects operational and business needs to be met by cash provided by operations, supplemented with borrowings from time to time, principally under the Senior Secured Credit Facilities. The Company supplements the cash provided by operations with borrowings from time to time due to historical patterns of seasonal cash flow and the funding of various projects. The Company regularly assesses capital needs in the context of operational trends and strategic initiatives.
The Company's cash flows from operating, investing and financing activities, as reflected on the Condensed Consolidated Statements of Cash Flows, are summarized in the following table:
Nine Months Ended
September 30
(In millions) 2024 2023
Net cash provided (used) by:
Operating activities $ 41.8 $ 46.2
Investing activities (22.2) (78.3)
Financing activities (22.4) 49.9
Effect of exchange rate changes on cash and cash equivalents, including restricted cash (8.6) (4.2)
Net change in cash and cash equivalents, including restricted cash $ (11.5) $ 13.6
Net cash (used) provided by operating activities -Net cash provided by operating activities in the nine months ended September 30, 2024 was $41.8 million, a decrease in cash flows of $4.4 million from the nine months ended September 30, 2023, primarily as a result of lower cash net income during the nine months ended September 30, 2024, offset by a net favorable change in working capital. Favorable working capital changes primarily included the timing of accounts receivable collections and the timing of customer advances related to Rail contracts, partially offset by unfavorable changes principally from increased payments for accrued compensation and increases to contract assets, mainly related to the timing of Rail contracts.
Net cash used by investing activities -Net cash used by investing activities during the nine months ended September 30, 2024 was $22.2 million, a decrease of $56.1 million from the cash used during the nine months ended September 30, 2023. The nine months ended September 30, 2024 included total net cash proceeds of $57.7 million from the sales of Performix in April 2024 and Reed in August 2024, increased payments of $5.8 million received from the Company's notes receivable and $10.4 million from the increase in the sale of assets, mainly by HE and Corporate, when compared to the prior year. These cash inflows were offset by increased capital expenditures, principally for CE and Rail, of $8.5 million and for the change in the settlement of foreign currency forward exchange contracts of $8.2 million during the nine months ended September 30, 2024, compared to 2023.
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Net cash (used) provided by financing activities -Net cash used by financing activities during the nine months ended September 30, 2024 was $22.4 million, compared to net cash provided by financing activities of $49.9 million during the nine months ended September 30, 2023. The change was primarily due to net repayments of the Company's net borrowings of $2.0 million during the nine months ended 2024, compared to net borrowings of $49.7 million during the nine months ended September 30, 2023, due principally to the changes in operating and investing activities. Net cash used by financing activities during the nine months ended September 30, 2024 also included dividend payments of $16.0 million made to strategic venture partners for HE.
Effects of exchange rate changes on cash and cash equivalents, including restricted cash - The decrease of $4.4 million is the result of exchange rate fluctuations due to the impact of the strengthening of the U.S. dollar against certain currencies, primarily the Egyptian pound, during 2024 on the global cash balances held by the Company in these currencies.
Sources and Uses of Cash
The Company's principal sources of liquidity are cash provided by operations on an annual basis and borrowings under the Senior Secured Credit Facilities, augmented by cash proceeds from asset sales. In addition, the Company has other bank credit facilities available throughout the world. The Company expects to continue to utilize all of these sources to meet future cash requirements for operations and growth initiatives.
Summary of Senior Secured Credit Facilities and Notes:
(in millions)
September 30
2024 		December 31
2023
By type:
Term Loan
$ 483.8 $ 487.5
Revolving Credit Facility
437.0 422.0
5.75% Senior Notes 475.0 475.0
Total
$ 1,395.8 $ 1,384.5
By classification:
Current $ 5.0 $ 5.0
Long-term 1,390.8 1,379.5
Total $ 1,395.8 $ 1,384.5
September 30, 2024
(In millions) Facility Limit Outstanding
Balance 		Outstanding Letters of Credit Available
Credit
Revolving credit facility
$ 675.0
(a)
$ 437.0 $ 29.9 $ 208.1
(a) Includes $625.0 million of new revolving credit commitments scheduled to mature on September 5, 2029 under the September 2024 amendment to the Senior Secured Credit Facilities, in addition to the $50.0 million retained under the existing revolving credit commitments scheduled to mature on March 10, 2026. Refer to Note 9, Debt and Credit Agreements in Part I, Financial Statements for more information related to this amendment.
Debt Covenants
Under the terms of the September 2024 amendment to the Company's Senior Secured Credit Facilities, the net debt to consolidated adjusted EBITDA ratio covenant is 4.75x for the quarter ended September 30, 2024, and decreases to 4.50x for the quarter ended June 30, 2025, 4.25x for the quarter ended December 31, 2025 and 4.00x thereafter. The Company's required coverage of consolidated interest charges is set at a minimum of 2.75x through the end of 2024 and increases to 3.00x beginning with the first quarter 2025.
At September 30, 2024, the Company was in compliance with these covenants, as the total net debt to Consolidated Adjusted EBITDA ratio was 3.99x and total interest coverage ratio was 3.15x. Based on balances and covenants in effect at September 30, 2024, the Company could increase net debt by $261.0 million and remain in compliance with these debt covenants. Alternatively, Consolidated Adjusted EBITDA could decrease by $43.5 million or interest expense could increase by $15.8 million and the Company would remain in compliance with these covenants at September 30, 2024. The Company believes it will continue to maintain compliance with these covenants based on its current outlook. However, the Company's estimates of compliance with these covenants could change in the future with a deterioration in economic conditions, higher than forecasted interest rate increases, the timing of working capital, including the collection of receivables, an inability to successfully realize increased pricing and implement cost reduction initiatives that mitigate the impacts of inflation and other factors that may adversely impact its compliance with covenants.
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AR Facility
The Company maintains a revolving trade receivables securitization facility to accelerate cash flows from trade accounts receivable, which was originally scheduled to mature in June 2025. On October 1, 2024, the maturity date was extended for another three-year term through October 2027. Under the AR Facility, the Company and its designated subsidiaries continuously sell their trade receivables as they are originated to the wholly-owned bankruptcy-remote SPE. The SPE transfers ownership and control of qualifying receivables to PNC up to a maximum purchase commitment of $150.0 million. No proceeds were received from the AR Facility during the nine months ended September 30, 2024.
Cash Management
The Company has various cash management systems throughout the world that centralize cash in various bank accounts where it is economically justifiable and legally permissible to do so. These centralized cash balances are then redeployed to other operations to reduce short-term borrowings and to finance working capital needs or capital expenditures. Due to the transitory nature of cash balances, they are normally invested in bank deposits that can be withdrawn at will or in very liquid short-term bank time deposits and government obligations. The Company's policy is to use the largest banks in the various countries in which the Company operates. The Company monitors the creditworthiness of banks and, when appropriate, will adjust banking operations to reduce or eliminate exposure to less creditworthy banks.
At September 30, 2024, the Company's consolidated cash and cash equivalents included $106.7 million held by non-U.S. subsidiaries and approximately 7.4% of the Company's consolidated cash and cash equivalents had regulatory restrictions that would preclude the transfer of funds with and among subsidiaries. Non-U.S. subsidiaries also held $28.5 million of cash and cash equivalents in consolidated strategic ventures. The strategic venture agreements may require strategic venture partner approval to transfer funds with and among subsidiaries. While the Company's remaining non-U.S. cash and cash equivalents can be transferred with and among subsidiaries, the majority of these non-U.S. cash balances will be used to support the ongoing working capital needs and continued growth of the Company's non-U.S. operations.
Recently Adopted and Recently Issued Accounting Standards
Information on recently adopted and recently issued accounting standards is included in Note 2, Recently Adopted and Recently Issued Accounting Standards, in Part I, Item 1, Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks have not changed significantly from those disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2024, an evaluation was performed, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a - 15 under the Securities and Exchange Act of 1934, as amended. Based upon that evaluation, such officers concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities and Exchange Act of 1934, as amended (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (2) is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information on legal proceedings is included in Note 12, Commitments and Contingencies, in Part I, Item 1, Financial Statements.
ITEM 1A. RISK FACTORS
The Company's risk factors as of September 30, 2024 have not changed materially from those described in Part 1, Item 1A, "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted, modified, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement for the purchase or sale of securities of the Company, within the meaning of Item 408 of Regulation S-K.
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ITEM 6. EXHIBITS
The following exhibits are included as part of this report by reference:
Exhibit
Number 		Description
10.1
10.2
Omnibus Amendment, dated as of October 1, 2024, including the Third Amendment to the Receivables Purchase Agreement, by and among Harsco Receivables LLC, Enviri Corporation, and PNC Bank, National Association, as administrative agent and as a purchaser; and the Third Amendment to the Purchase and Contribution Agreement, by and among Enviri Corporation, the various entities listed as originators, and Harsco Receivables, LLC.* †
31.1
Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chairman, President and Chief Executive Officer).*
31.2
Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).*
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Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chairman, President and Chief Executive Officer and Chief Financial Officer).**
101.Def Definition Linkbase Document
101.Pre Presentation Linkbase Document
101.Lab Labels Linkbase Document
101.Cal Calculation Linkbase Document
101.Sch Schema Document
101.Ins Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith
** Furnished herewith
† Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such schedules and attachments to the Securities and Exchange Commission upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ENVIRI CORPORATION
(Registrant)
DATE October 31, 2024 /s/ TOM VADAKETH
Tom Vadaketh
Senior Vice President and Chief Financial Officer
(On behalf of the registrant and as Principal Financial Officer)
DATE October 31, 2024 /s/ SAMUEL C. FENICE
Samuel C. Fenice
Vice President and Corporate Controller
(Principal Accounting Officer)
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