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EX-31.1 - EXHIBIT 31.1 - HARSCO CORPhsc-ex311_2015q2.htm
EX-31.2 - EXHIBIT 31.2 - HARSCO CORPhsc-ex312_2015q2.htm
EX-10.1 - EXHIBIT 10.1 - HARSCO CORPhsc-ex101_2015q2.htm
EX-32 - EXHIBIT 32 - HARSCO CORPhsc-ex32_2015q2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2015
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
HARSCO CORPORATION
(Exact name of registrant as specified in its charter) 
Delaware
23-1483991
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification number)
 
 
350 Poplar Church Road, Camp Hill, Pennsylvania
17011
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code  717-763-7064 
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 ý  NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES ý  NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ý
Accelerated filer  o
 
 
Non-accelerated filer  o
(Do not check if a smaller reporting company)
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o  NO ý
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at July 31, 2015
Common stock, par value $1.25 per share
 
80,093,923




HARSCO CORPORATION
FORM 10-Q
INDEX
 
 
 
Page
 
 
 
 
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I — FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS
HARSCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
 
June 30
2015
 
December 31
2014
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
67,148

 
$
62,843

Trade accounts receivable, net
 
329,467

 
325,104

Other receivables
 
22,167

 
28,145

Inventories
 
208,043

 
178,922

Other current assets
 
82,603

 
88,465

Total current assets
 
709,428

 
683,479

Investments
 
262,689

 
288,505

Property, plant and equipment, net
 
626,616

 
663,244

Goodwill
 
412,998

 
416,155

Intangible assets, net
 
57,868

 
58,524

Other assets
 
186,707

 
159,320

Total assets
 
$
2,256,306

 
$
2,269,227

LIABILITIES
 
 

 
 

Current liabilities:
 
 

 
 

Short-term borrowings
 
$
12,352

 
$
16,748

Current maturities of long-term debt
 
21,585

 
25,188

Accounts payable
 
152,034

 
146,506

Accrued compensation
 
44,572

 
53,780

Income taxes payable
 
3,127

 
1,985

Dividends payable
 
16,419

 
16,535

Insurance liabilities
 
11,976

 
12,415

Advances on contracts
 
119,473

 
117,398

Due to unconsolidated affiliate
 
8,929

 
8,142

Unit adjustment liability
 
22,320

 
22,320

Other current liabilities
 
136,696

 
144,543

Total current liabilities
 
549,483

 
565,560

Long-term debt
 
909,235

 
829,709

Deferred income taxes
 
10,467

 
6,379

Insurance liabilities
 
31,605

 
35,470

Retirement plan liabilities
 
322,143

 
350,889

Due to unconsolidated affiliate
 
20,773

 
20,169

Unit adjustment liability
 
64,692

 
71,442

Other liabilities
 
36,450

 
37,699

Total liabilities
 
1,944,848

 
1,917,317

COMMITMENTS AND CONTINGENCIES
 


 


HARSCO CORPORATION STOCKHOLDERS’ EQUITY
 
 

 
 

Preferred stock
 

 

Common stock
 
140,502

 
140,444

Additional paid-in capital
 
167,824

 
165,666

Accumulated other comprehensive loss
 
(554,875
)
 
(532,256
)
Retained earnings
 
1,272,591

 
1,283,549

Treasury stock
 
(760,294
)
 
(749,815
)
Total Harsco Corporation stockholders’ equity
 
265,748

 
307,588

Noncontrolling interests
 
45,710

 
44,322

Total equity
 
311,458

 
351,910

Total liabilities and equity
 
$
2,256,306

 
$
2,269,227


See accompanying notes to unaudited condensed consolidated financial statements.

3


HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
(In thousands, except per share amounts)
 
2015
 
2014
 
2015
 
2014
Revenues from continuing operations:
 
 

 
 

 
 
 
 
Service revenues
 
$
292,209

 
$
361,966

 
$
579,637

 
$
712,760

Product revenues
 
163,538

 
173,378

 
327,689

 
335,067

Total revenues
 
455,747

 
535,344

 
907,326

 
1,047,827

Costs and expenses from continuing operations:
 
 

 
 

 
 
 
 
Cost of services sold
 
243,838

 
296,532

 
489,699

 
590,840

Cost of products sold
 
116,561

 
120,657

 
231,782

 
236,123

Selling, general and administrative expenses
 
58,463

 
77,969

 
122,365

 
144,763

Research and development expenses
 
1,514

 
1,058

 
2,433

 
3,721

Loss on disposal of the Harsco Infrastructure Segment and transaction costs
 

 
2,918

 

 
4,599

Other (income) expenses
 
(358
)
 
27,516

 
(13,563
)
 
26,860

Total costs and expenses
 
420,018

 
526,650

 
832,716

 
1,006,906

Operating income from continuing operations
 
35,729

 
8,694

 
74,610

 
40,921

Interest income
 
431

 
410

 
687

 
707

Interest expense
 
(11,818
)
 
(11,958
)
 
(23,702
)
 
(23,379
)
Change in fair value to the unit adjustment liability
 
(2,164
)
 
(2,473
)
 
(4,409
)
 
(5,019
)
Income (loss) from continuing operations before income taxes and equity loss
 
22,178

 
(5,327
)
 
47,186

 
13,230

Income tax expense
 
(7,105
)
 
(4,843
)
 
(19,960
)
 
(10,154
)
Equity in loss of unconsolidated entities, net
 
(7,584
)
 
(3,518
)
 
(3,501
)
 
(4,748
)
Income (loss) from continuing operations
 
7,489

 
(13,688
)
 
23,725

 
(1,672
)
Discontinued operations:
 
 

 
 

 
 
 
 
Income (loss) on disposal of discontinued business
 
434

 
1,732

 
(212
)
 
1,092

Income tax (expense) benefit related to discontinued business
 
(161
)
 
(642
)
 
78

 
(405
)
Income (loss) from discontinued operations
 
273

 
1,090

 
(134
)
 
687

Net income (loss)
 
7,762

 
(12,598
)
 
23,591

 
(985
)
Less: Net income attributable to noncontrolling interests
 
(1,187
)
 
(14
)
 
(1,752
)
 
(1,416
)
Net income (loss) attributable to Harsco Corporation
 
$
6,575

 
$
(12,612
)
 
$
21,839

 
$
(2,401
)
Amounts attributable to Harsco Corporation common stockholders:
Income (loss) from continuing operations, net of tax
 
$
6,302

 
$
(13,702
)
 
$
21,973

 
$
(3,088
)
Income (loss) from discontinued operations, net of tax
 
273

 
1,090

 
(134
)
 
687

Net income (loss) attributable to Harsco Corporation common stockholders
 
$
6,575

 
$
(12,612
)
 
$
21,839

 
$
(2,401
)
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding
 
80,221

 
80,885

 
80,230

 
80,850

Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders:
Continuing operations
 
$
0.08

 
$
(0.17
)
 
$
0.27

 
$
(0.04
)
Discontinued operations
 

 
0.01

 

 
0.01

Basic earnings (loss) per share attributable to Harsco Corporation common stockholders
 
$
0.08

 
$
(0.16
)

$
0.27

 
$
(0.03
)
 
 
 
 
 
 
 
 
 
Diluted weighted-average shares of common stock outstanding
 
80,418

 
80,885

 
80,385

 
80,850

Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders:
Continuing operations
 
$
0.08

 
$
(0.17
)
 
$
0.27

 
$
(0.04
)
Discontinued operations
 

 
0.01

 

 
0.01

Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders
 
$
0.08

 
$
(0.16
)

$
0.27

 
$
(0.03
)
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.205

 
$
0.205

 
$
0.41

 
$
0.41


See accompanying notes to unaudited condensed consolidated financial statements.

4


HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
 
June 30
(In thousands)
 
2015
 
2014
Net income (loss)
 
$
7,762

 
$
(12,598
)
Other comprehensive income (loss):
 
 

 
 

Foreign currency translation adjustments, net of deferred income taxes of $4,542 and $(359) in 2015 and 2014, respectively
 
(8,975
)
 
3,017

Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $984 and $282 in 2015 and 2014, respectively
 
(1,693
)
 
2,096

Pension liability adjustments, net of deferred income taxes of $2,131 and $333 in 2015 and 2014, respectively
 
(17,077
)
 
(3,005
)
Unrealized gain on marketable securities, net of deferred income taxes of $(1) and $(5) in 2015 and 2014, respectively
 
4

 
9

Total other comprehensive income (loss)
 
(27,741
)
 
2,117

Total comprehensive loss
 
(19,979
)
 
(10,481
)
Less: Comprehensive (income) loss attributable to noncontrolling interests
 
(846
)
 
100

Comprehensive loss attributable to Harsco Corporation
 
$
(20,825
)
 
$
(10,381
)
 
 
Six Months Ended
 
 
June 30
(In thousands)
 
2015
 
2014
Net income (loss)
 
$
23,591

 
$
(985
)
Other comprehensive income (loss):
 
 

 
 

Foreign currency translation adjustments, net of deferred income taxes of $2,892 and $(460) in 2015 and 2014, respectively
 
(37,817
)
 
1,747

Net gain (loss) on cash flow hedging instruments, net of deferred income taxes of $(538) and $668 in 2015 and 2014, respectively
 
5,881

 
(1,867
)
Pension liability adjustments, net of deferred income taxes of $(960) and $(73) in 2015 and 2014, respectively
 
8,216

 
676

Unrealized gain (loss) on marketable securities, net of deferred income taxes of $3 and $(2) in 2015 and 2014, respectively
 
(4
)
 
4

Total other comprehensive income (loss)
 
(23,724
)
 
560

Total comprehensive loss
 
(133
)
 
(425
)
Less: Comprehensive income attributable to noncontrolling interests
 
(647
)
 
(1,002
)
Comprehensive loss attributable to Harsco Corporation
 
$
(780
)
 
$
(1,427
)

See accompanying notes to unaudited condensed consolidated financial statements.

5


HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
Six Months Ended
 
 
June 30
(In thousands)
 
2015
 
2014
Cash flows from operating activities:
 
 

 
 

Net income (loss)
 
$
23,591

 
$
(985
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 

 
 

Depreciation
 
73,507

 
84,333

Amortization
 
6,073

 
6,046

Change in fair value to the unit adjustment liability
 
4,409

 
5,019

Deferred income tax expense
 
2,133

 
2,862

Equity in loss of unconsolidated entities, net
 
3,501

 
4,748

Loss on disposal of Harsco Infrastructure Segment
 

 
2,911

Other, net
 
(17,473
)
 
16,926

Changes in assets and liabilities:
 
 

 
 

Accounts receivable
 
(10,698
)
 
(31,496
)
Inventories
 
(31,192
)
 
(12,972
)
Accounts payable
 
11,437

 
(7,172
)
Accrued interest payable
 
(163
)
 
704

Accrued compensation
 
(6,870
)
 
2,072

Advances on contracts
 
8,246

 
32,870

Harsco 2011/2012 Restructuring Program accrual
 
(101
)
 
(2,198
)
Other assets and liabilities
 
(21,182
)
 
(28,338
)
Net cash provided by operating activities
 
45,218

 
75,330

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Purchases of property, plant and equipment
 
(63,246
)
 
(82,496
)
Proceeds from the Infrastructure Transaction
 

 
15,699

Proceeds from sales of assets
 
13,351

 
6,120

Purchases of businesses, net of cash acquired
 
(7,757
)
 
(26,046
)
Payment of unit adjustment liability
 
(11,160
)
 
(11,160
)
Other investing activities, net
 
(4,783
)
 
(1,926
)
Net cash used by investing activities
 
(73,595
)
 
(99,809
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Short-term borrowings, net
 
(3,046
)
 
(1,570
)
Current maturities and long-term debt:
 
 

 
 

Additions
 
92,980

 
108,431

Reductions
 
(16,152
)
 
(62,595
)
Cash dividends paid on common stock
 
(32,891
)
 
(33,146
)
Dividends paid to noncontrolling interests
 
(1,559
)
 
(1,586
)
Common stock acquired for treasury
 
(12,143
)
 

Other financing activities, net
 
(2,192
)
 
(2
)
Net cash provided by financing activities
 
24,997

 
9,532

 
 
 
 
 
Effect of exchange rate changes on cash
 
7,685

 
(1,191
)
Net increase (decrease) in cash and cash equivalents
 
4,305

 
(16,138
)
Cash and cash equivalents at beginning of period
 
62,843

 
93,605

Cash and cash equivalents at end of period
 
$
67,148

 
$
77,467

 
See accompanying notes to unaudited condensed consolidated financial statements.

6


HARSCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
 
 
Harsco Corporation Stockholders’ Equity
 
 
 
 
 
 
Common Stock
 
Additional Paid-in Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
 
(In thousands, except share and per share amounts)
 
Issued
 
Treasury
 
 
 
 
 
Total
Balances, January 1, 2014
 
$
140,248

 
$
(746,237
)
 
$
159,025

 
$
1,372,041

 
$
(370,615
)
 
$
43,093

 
$
597,555

Net income (loss)
 
 

 
 

 
 

 
(2,401
)
 
 

 
1,416

 
(985
)
Cash dividends declared:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Common @ $0.41 per share
 
 

 
 

 
 

 
(33,174
)
 
 

 
 

 
(33,174
)
   Noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
(1,719
)
 
(1,719
)
Total other comprehensive income (loss), net of deferred income taxes of $133
 
 
 
 
 
 
 
 
 
974

 
(414
)
 
560

Contributions from noncontrolling interests
 
 

 
 

 
 

 
 

 
 

 
1,560

 
1,560

Noncontrolling interests transferred in the Infrastructure Transaction
 
 
 
 
 
 
 
 
 
 
 
(905
)
 
(905
)
Vesting of restricted stock units and other stock grants, net 124,532 shares
 
187

 
(693
)
 
1,933

 
 

 
 

 
 

 
1,427

Amortization of unearned portion of stock-based compensation, net of forfeitures
 
 

 
 

 
2,321

 
 

 
 

 
 

 
2,321

Balances, June 30, 2014
 
$
140,435

 
$
(746,930
)
 
$
163,279

 
$
1,336,466

 
$
(369,641
)
 
$
43,031

 
$
566,640

 
 
Harsco Corporation Stockholders’ Equity
 
 
 
 
(In thousands, except share and per share amounts)
 
Common Stock
 
Additional Paid-in Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
 
 
Issued
 
Treasury
 
 
 
 
 
Total
Balances, January 1, 2015
 
$
140,444

 
$
(749,815
)
 
$
165,666

 
$
1,283,549

 
$
(532,256
)
 
$
44,322

 
$
351,910

Net income
 
 

 
 

 
 

 
21,839

 
 

 
1,752

 
23,591

Cash dividends declared:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Common @ $0.41 per share
 
 

 
 

 
 

 
(32,797
)
 
 

 
 

 
(32,797
)
Noncontrolling interests
 
 

 
 

 
 

 
 

 
 

 
(1,559
)
 
(1,559
)
Total other comprehensive loss, net of deferred income taxes of $1,397
 
 
 
 
 
 
 
 
 
(22,619
)
 
(1,105
)
 
(23,724
)
Contributions from noncontrolling interests
 
 

 
 

 
 

 
 

 
 

 
2,100

 
2,100

Sale of investment in consolidated subsidiary
 
 
 
 
 
 
 
 
 
 
 
200

 
200

Vesting of restricted stock units and other stock grants, net 30,705 shares
 
58

 
(259
)
 
(97
)
 
 

 
 

 
 

 
(298
)
Treasury shares repurchased, 596,632 shares
 
 
 
(10,220
)
 
 
 
 
 
 
 
 
 
(10,220
)
Amortization of unearned portion of stock-based compensation, net of forfeitures
 
 

 
 

 
2,255

 
 

 
 

 
 

 
2,255

Balances, June 30, 2015
 
$
140,502

 
$
(760,294
)
 
$
167,824

 
$
1,272,591

 
$
(554,875
)
 
$
45,710

 
$
311,458

 
See accompanying notes to unaudited condensed consolidated financial statements.

7


HARSCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.     Basis of Presentation
Harsco Corporation (the “Company”) has prepared these unaudited condensed consolidated financial statements based on Securities and Exchange Commission rules that permit reduced disclosure for interim periods.  In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair presentation are reflected in the unaudited condensed consolidated financial statements.  The December 31, 2014 Condensed Consolidated Balance Sheet information contained in this Quarterly Report on Form 10-Q was derived from the 2014 audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for an annual report.  The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as revised in the Company's Current Report on Form 8-K filed on June 1, 2015.
Operating results and cash flows for the three and six months ended June 30, 2015 are not indicative of the results that may be expected for the year ending December 31, 2015.

2.     Revised Financial Statements

During the first quarter of 2015, the Company identified an error that would have had the net effect of decreasing after-tax income by $7.5 million, related to an unasserted multiemployer pension plan withdrawal liability that should have been recorded by the Company in the fourth quarter of 2012. The Company became aware of the potential withdrawal liability during the first quarter of 2015 and followed the Company's standard procedure of engaging outside experts to determine the amount of potential liability. Based on these procedures, the Company determined it had triggered a partial withdrawal during the fourth quarter of 2012 due to a decrease in hours worked by the Company's employees who participate in the plan and that such amount should have been accrued in that period. The Company assessed the individual and aggregate impact of this error on the current year and all prior periods and determined that the cumulative effect of this error was material to both the first quarter and expected full-year 2015 results, but did not result in a material misstatement to any previously issued annual or quarterly financial statements. Accordingly, the Company is revising the relevant financial statements for all applicable periods and will revise additional financial statements as they appear in future filings.

In connection with the revision, the Company additionally corrected all previously disclosed immaterial out-of-period adjustments, including tax adjustments. The impact of revising the Company’s Condensed Consolidated Balance Sheets, Condensed Statements of Operations and Condensed Consolidated Statements of Cash Flows for all periods presented are as follows:
 
 
December 31, 2014
(In thousands)
 
As Previously Reported
 
Revision
 
As Revised
ASSETS
 
 
 
 
 
 
Inventories
 
$
177,265

 
$
1,657

 
$
178,922

Total current assets
 
681,822

 
1,657

 
683,479

Other assets
 
155,551

 
3,769

 
159,320

Total assets
 
2,263,801

 
5,426

 
2,269,227

 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
Other liabilities
 
$
25,849

 
$
11,850

 
$
37,699

Total liabilities
 
1,905,467

 
11,850

 
1,917,317

 
 
 
 
 
 
 
HARSCO CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
Accumulated other comprehensive loss
 
$
(532,491
)
 
$
235

 
$
(532,256
)
Retained earnings
 
1,290,208

 
(6,659
)
 
1,283,549

Total Harsco Corporation stockholders’ equity
 
314,012

 
(6,424
)
 
307,588

Total equity
 
358,334

 
(6,424
)
 
351,910

Total liabilities and equity
 
2,263,801

 
5,426

 
2,269,227


8


 
 
Three Months Ended
 
 
June 30, 2014
(In thousands, except per share amounts)
 
As Previously Reported
 
Revision
 
As Revised
Revenues from continuing operations:
 
 
 
 
 
 
Service revenues
 
$
361,199

 
$
767

 
$
361,966

Total revenues
 
534,577

 
767

 
535,344

 
 
 
 
 
 
 
Costs and expenses from continuing operations:
 
 
 
 
 
 
Cost of services sold
 
$
296,801

 
$
(269
)
 
$
296,532

Research and development expenses
 
1,983

 
(925
)
 
1,058

Loss on disposal of the Harsco Infrastructure Segment and transaction costs
 
3,415

 
(497
)
 
2,918

Total costs and expenses
 
528,341

 
(1,691
)
 
526,650

 
 
 
 
 
 
 
Operating income from continuing operations
 
$
6,236

 
$
2,458

 
$
8,694

Loss from continuing operations before income taxes and equity loss
 
(7,785
)
 
2,458

 
(5,327
)
Income tax expense
 
(4,258
)
 
(585
)
 
(4,843
)
Equity in loss of unconsolidated entities, net
 
(3,008
)
 
(510
)
 
(3,518
)
Loss from continuing operations
 
(15,051
)
 
1,363

 
(13,688
)
Net loss
 
(13,961
)
 
1,363

 
(12,598
)
Net loss attributable to Harsco Corporation
 
(13,975
)
 
1,363

 
(12,612
)
 
 
 
 
 
 
 
Amounts attributable to Harsco Corporation common stockholders:
Loss from continuing operations, net of tax
 
$
(15,065
)
 
$
1,363

 
$
(13,702
)
Net loss attributable to Harsco Corporation common stockholders
 
(13,975
)
 
1,363

 
(12,612
)
 
 
 
 
 
 
 
Basic loss per common share attributable to Harsco Corporation common stockholders:
Continuing operations
 
$
(0.19
)
 
$
0.02

 
$
(0.17
)
Basic loss per share attributable to Harsco Corporation common stockholders
 
(0.17
)
 
0.01

 
(0.16
)
 
 
 
 
 
 
 
Diluted loss per common share attributable to Harsco Corporation common stockholders:
Continuing operations
 
$
(0.19
)
 
$
0.02

 
$
(0.17
)
Diluted loss per share attributable to Harsco Corporation common stockholders
 
(0.17
)
 
0.01

 
(0.16
)

9


 
 
Six Months Ended
 
 
June 30, 2014
(In thousands, except per share amounts)
 
As Previously Reported
 
Revision
 
As Revised
Revenues from continuing operations:
 
 
 
 
 
 
Service revenues
 
$
712,209

 
$
551

 
$
712,760

Total revenues
 
1,047,276

 
551

 
1,047,827

 
 
 
 
 
 
 
Costs and expenses from continuing operations:
 
 
 
 
 
 
Cost of services sold
 
$
590,800

 
$
40

 
$
590,840

Research and development expenses
 
4,602

 
(881
)
 
3,721

Loss on disposal of the Harsco Infrastructure Segment and transaction costs
 
5,553

 
(954
)
 
4,599

Total costs and expenses
 
1,008,701

 
(1,795
)
 
1,006,906

 
 
 
 
 
 
 
Operating income from continuing operations
 
$
38,575

 
$
2,346

 
$
40,921

Income from continuing operations before income taxes and equity loss
 
10,884

 
2,346

 
13,230

Income tax expense
 
(8,753
)
 
(1,401
)
 
(10,154
)
Equity in loss of unconsolidated entities, net
 
(4,238
)
 
(510
)
 
(4,748
)
Loss from continuing operations
 
(2,107
)
 
435

 
(1,672
)
Net loss
 
(1,420
)
 
435

 
(985
)
Net loss attributable to Harsco Corporation
 
(2,836
)
 
435

 
(2,401
)
 
 
 
 
 
 
 
Amounts attributable to Harsco Corporation common stockholders:
Loss from continuing operations, net of tax
 
$
(3,523
)
 
$
435

 
$
(3,088
)
Net loss attributable to Harsco Corporation common stockholders
 
(2,836
)
 
435

 
(2,401
)
 
 
 
 
 
 
 
Basic loss per common share attributable to Harsco Corporation common stockholders:
Basic loss per share attributable to Harsco Corporation common stockholders
 
(0.04
)
 
0.01

 
(0.03
)
 
 
 
 
 
 
 
Diluted earnings per common share attributable to Harsco Corporation common stockholders:
Diluted loss per share attributable to Harsco Corporation common stockholders
 
(0.04
)
 
0.01

 
(0.03
)

 
 
Six Months Ended
 
 
June 30, 2014
(In thousands)
 
As Previously Reported
 
Revision
 
As Revised
Net cash provided (used) by:
 
 
 
 
 
 
Operating activities
 
$
74,449

 
$
881

 
$
75,330

Investing activities
 
(98,928
)
 
(881
)
 
(99,809
)

As of June 30, 2015, the cumulative impact of this revision was a $6.7 million reduction in retained earnings. The diluted loss per share from continuing operations decrease for the year ended December 31, 2014 was $0.03. The diluted loss per share from continuing operations increase for the years ended December 31, 2013 and 2012 was $0.06 for both periods. The notes to the condensed consolidated financial statements for the three and six months ended June 30, 2015 have been revised, as applicable.












10


3.     Recently Adopted and Recently Issued Accounting Standards
The following accounting standards have been adopted in 2015:
On January 1, 2015, the Company adopted changes issued by the Financial Accounting Standards Board ("FASB") related to reporting discontinued operations and the disclosure of disposals of components of an entity. The changes modify the criteria related to what transactions constitute discontinued operations and expand disclosure requirements. The adoption of these changes did not have a material impact on the Company's condensed consolidated financial statements.
The following accounting standards have been issued and become effective for the Company at a future date:
In May 2014, the FASB issued changes related to the recognition of revenue from contracts with customers. The changes clarify the principles for recognizing revenue and develop a common revenue standard. The core principle of the changes is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The changes also require additional disclosures related to revenue recognition. In July 2015, the FASB deferred the effective date of these changes by one year, but will permit entities to adopt one year earlier. The changes become effective for the Company on January 1, 2018. Management is currently evaluating these changes.
In August 2014, the FASB issued changes related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The changes become effective for the Company on January 1, 2017. Management has determined that these changes will not have a material impact on the Company's condensed consolidated financial statements.
In January 2015, the FASB issued changes related to reporting extraordinary and unusual items. The changes simplify income statement presentation by eliminating the concept of extraordinary items. The changes become effective for the Company on January 1, 2016. Management has determined that these changes will not have a material impact on the Company's condensed consolidated financial statements.
In February 2015, the FASB issued changes related to consolidation. The changes update consolidation analysis and affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. The changes become effective for the Company on January 1, 2016. Management has determined that these changes will not have a material impact on the Company's condensed consolidated financial statements.
In April 2015, the FASB issued changes related to simplifying the presentation of debt issuance costs. The amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability. The changes become effective for the Company on January 1, 2016. Management has determined that these changes will not have a material impact on the Company's condensed consolidated financial statements.
In April 2015, the FASB issued changes related to the determination of whether a cloud computing arrangement includes a software license. If a cloud computing arrangement is determined to include a software license, then the customer accounts for the software license element consistent with the acquisition of other software licenses. If the arrangement is determined not to contain a software license, the customer should account for the arrangement as a service contract. The changes become effective for the Company on January 1, 2016. Management has determined that these changes will not have a material impact on the Company's condensed consolidated financial statements.

4.    Acquisitions

Acquisitions
In March 2015, the Company acquired Protran Technology ("Protran"), a U.S. designer and producer of safety systems for transportation and industrial applications; and in April 2015, the Company acquired JK Rail Products, LLC ("JK Rail"), a provider of after-market parts for railroad track maintenance. Protran and JK Rail have been included in the results of the Harsco Rail Segment. Inclusion of pro forma financial information for these transactions is not necessary as the acquisitions are immaterial. The purchase price allocations are not yet final for Protran and JK Rail.



11


5.    Accounts Receivable and Inventories
Accounts receivable consist of the following:
(In thousands)
 
June 30
2015
 
December 31
2014
Trade accounts receivable
 
$
344,470

 
$
340,223

Less: Allowance for doubtful accounts
 
(15,003
)
 
(15,119
)
Trade accounts receivable, net
 
$
329,467

 
$
325,104

 
 
 
 
 
Other receivables (a)
 
$
22,167

 
$
28,145

(a) Other receivables include insurance claim receivables, employee receivables, tax claim receivables, receivables from affiliates and other miscellaneous receivables not included in Trade accounts receivable, net. 
The provision for doubtful accounts related to trade accounts receivable was as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
(In thousands)
 
2015
 
2014
 
2015
 
2014
Provision for doubtful accounts related to trade accounts receivable
 
$
414

 
$
7,364

 
$
610

 
$
7,345

The decrease in the Provision for doubtful accounts related to trade accounts receivable for both the three and six months ended June 30, 2015 relates to reserves taken in 2014 for two European customers in the Harsco Metals & Minerals Segment.
Inventories consist of the following:
(In thousands)
 
June 30
2015
 
December 31
2014
Finished goods
 
$
36,181

 
$
30,525

Work-in-process
 
59,047

 
28,690

Raw materials and purchased parts
 
80,671

 
87,985

Stores and supplies
 
32,144

 
31,722

Inventories
 
$
208,043

 
$
178,922


6. Equity Method Investments

In November 2013, the Company consummated the previously announced transaction to sell the Company's Harsco Infrastructure Segment into a strategic venture with Clayton, Dubilier & Rice ("CD&R") as part of a transaction that combined the Harsco Infrastructure Segment with Brand Energy & Infrastructure Services, Inc., which CD&R simultaneously acquired (the "Infrastructure Transaction"). As a result of the Infrastructure Transaction, the Company owns an approximate 29% equity interest in Brand Energy & Infrastructure Services Inc. and Subsidiaries ("Brand" or the "Infrastructure strategic venture") at both June 30, 2015 and December 31, 2014.



















12


The book value of the Company's equity method investment in Brand at June 30, 2015 and December 31, 2014 was $259.9 million and $285.7 million, respectively. The Company records the Company's proportionate share of Brand's net income or loss one quarter in arrears. Brand's results of operations for the three months ended March 31, 2015 and 2014 and the six months ended March 31, 2015 and the period from November 27, 2013 through March 31, 2014, are summarized as follows:
 
 
 
(In thousands)
 
Three Months Ended March 31 2015
 
Three Months Ended March 31 2014
 
Six Months Ended March 31 2015
 
Period From November 27 2013 Through March 31 2014
Summarized Statement of Operations Information of Brand:
Net revenues
 
$
677,527

 
$
741,763

 
$
1,481,726

 
$
977,857

Gross profit
 
134,705

 
151,862

 
331,946

 
200,694

Net loss attributable to Brand Energy & Infrastructure Services, Inc. and Subsidiaries
 
(26,418
)
 
(13,272
)
 
(12,201
)
 
(17,513
)
 
 
 
 
 
 
 
 
 
Harsco's equity in loss of Brand
 
(7,584
)
 
(3,518
)
 
(3,501
)
 
(4,748
)

The Company is required to make a quarterly payment to the Company's partner in the Infrastructure strategic venture, either (at the Company's election) (i) in cash, with total payments to equal approximately $22 million per year on a pre-tax basis (approximately $15 million per year after-tax), or (ii) in kind, through the transfer of approximately 2.5% of the Company's ownership interest in the Infrastructure strategic venture on an annual basis (the "unit adjustment liability"). The resulting liability is reflected in the caption, Unit adjustment liability, on the Company's Condensed Consolidated Balance Sheets. The Company will recognize the change in fair value to the unit adjustment liability each period until the Company is no longer required to make these payments or chooses not to make these payments. The change in fair value to the unit adjustment liability is a non-cash expense. For the three and six months ended June 30, 2015, the Company recognized $2.2 million and $4.4 million, respectively, of change in fair value to the unit adjustment liability, compared to $2.5 million and $5.0 million for the three and six months ended June 30, 2014, respectively.

The Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 include balances related to the unit adjustment liability of $87.0 million and $93.8 million, respectively, in the current and non-current captions, Unit adjustment liability. A reconciliation of beginning and ending balances related to the unit adjustment liability is included in Note 14, Derivative Instruments, Hedging Activities and Fair Value.

The Company intends to make these quarterly payments in cash and will continue to evaluate the implications of making payments in cash or in kind based upon performance of the Infrastructure strategic venture. In the future, should the Company decide not to make the cash payment, the value of both the equity method investment in Brand and the related unit adjustment liability may be impacted, and the change may be reflected in earnings in that period.

Balances related to transactions between the Company and Brand are as follows:
(In thousands)
 
June 30
2015
 
December 31
2014
Balances due from Brand
 
$
2,940

 
$
1,860

Balances due to Brand
 
29,702

 
28,311


These balances between the Company and Brand relate primarily to the funding of certain transferred defined benefit pension plan obligations through 2018. There is not expected to be any significant level of revenue or expense between the Company and Brand on an ongoing basis once all aspects of the Infrastructure Transaction have been finalized.

13


7.     Property, Plant and Equipment
Property, plant and equipment consists of the following:
(In thousands)
 
June 30
2015
 
December 31
2014
Land
 
$
13,742

 
$
15,721

Land improvements
 
15,751

 
15,898

Buildings and improvements
 
208,164

 
205,409

Machinery and equipment
 
1,804,315

 
1,861,965

Construction in progress
 
65,019

 
87,414

Gross property, plant and equipment
 
2,106,991

 
2,186,407

Less: Accumulated depreciation
 
(1,480,375
)
 
(1,523,163
)
Property, plant and equipment, net
 
$
626,616

 
$
663,244


8.     Goodwill and Other Intangible Assets
The following table reflects the changes in carrying amounts of goodwill by segment for the six months ended June 30, 2015:
(In thousands)
 
Harsco Metals  & Minerals Segment
 
Harsco Industrial Segment
 
Harsco Rail
Segment
 
Consolidated
Totals
Balance at December 31, 2014
 
$
400,006

 
$
6,839

 
$
9,310

 
$
416,155

Changes to goodwill (a)
 
(493
)
 

 
3,350

 
2,857

Foreign currency translation
 
(6,014
)
 

 

 
(6,014
)
Balance at June 30, 2015
 
$
393,499

 
$
6,839

 
$
12,660

 
$
412,998

(a) Changes to goodwill in the Harsco Rail Segment relate to the acquisitions of Protran and JK Rail. See Note 4, Acquisitions and Dispositions. In addition, the change to goodwill in the Harsco Metals & Minerals Segment relates to the allocation of goodwill associated with the sale of the Company's Pakistan-based chromium operations.
The Company’s 2014 annual goodwill impairment testing did not result in any impairment of the Company’s goodwill. The fair value of the Harsco Metals & Minerals Segment exceeded the carrying value by approximately 10%.  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 the annual goodwill impairment test as of October 1 and monitors for triggering events on an ongoing basis.  The Company determined that, as of June 30, 2015, no interim goodwill impairment testing was necessary.  There can be no assurance that the Company’s annual goodwill impairment testing will not result in a charge to earnings. Should the Company’s analysis continue to indicate degradation in the overall markets served by the Harsco Metals & Minerals Segment, impairment losses for associated assets could be required. Any impairment could result in the write-down of the carrying value of goodwill to its implied fair value.
Intangible assets included in the captions, Other current assets and Intangible assets, net, on the Condensed Consolidated Balance Sheets consist of the following:
 
 
June 30, 2015
 
December 31, 2014
(In thousands)
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Customer related
 
$
157,864

 
$
112,747

 
$
157,530

 
$
112,211

Non-compete agreements
 
1,097

 
1,043

 
1,107

 
1,039

Patents
 
6,957

 
5,533

 
6,079

 
5,399

Technology related
 
26,142

 
22,261

 
26,548

 
21,233

Trade names
 
8,317

 
3,963

 
7,745

 
3,733

Other
 
7,597

 
4,394

 
7,420

 
4,290

Total
 
$
207,974

 
$
149,941

 
$
206,429

 
$
147,905


Amortization expense for intangible assets was as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
(In thousands)
 
2015
 
2014
 
2015
 
2014
Amortization expense for intangible assets
 
$
2,179

 
$
2,593

 
$
4,316

 
$
5,146


14


The estimated amortization expense for the next five fiscal years based on current intangible assets is as follows:
(In thousands)
 
2015
 
2016
 
2017
 
2018
 
2019
Estimated amortization expense (b)
 
$
8,750

 
$
8,250

 
$
5,500

 
$
5,250

 
$
5,250

(b) These estimated amortization expense amounts do not reflect the potential effect of future foreign currency exchange fluctuations.



9.     Debt and Credit Agreements

In March 2012, the Company entered into an Amended and Restated Five Year Credit Agreement (the "Credit Agreement") providing for $525 million of borrowing capacity through a syndicate of 14 banks.

On March 27, 2015, the Company entered into Amendment No. 3 ("Amendment No. 3") to the Credit Agreement.  Amendment No. 3 provides for (i) $500 million of borrowing capacity, which the Company may request be increased to $550 million pending lenders’ agreement, through a syndicate of 11 banks; (ii) extension of the current termination date for the Credit Agreement from March 2, 2017 to June 2, 2019 upon successful completion of refinancing the Company's 2.7% notes due October 15, 2015; (iii) replacement of the existing consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio with a net debt to consolidated EBITDA ratio not to exceed 3.75 to 1.0 through March 31, 2016 and 3.5 to 1.0 thereafter; and (iv) modification to certain defined terms.  During the three months ended March 31, 2015, the Company expensed $0.6 million of previously deferred financing costs associated with the Credit Agreement for banks which did not participate in Amendment No. 3 to the Credit Agreement.
At June 30, 2015 and December 31, 2014, the Company had $183.0 million and $98.5 million, respectively, of Credit Agreement borrowings outstanding. At June 30, 2015 and December 31, 2014, all such balances were classified as long-term borrowings in the Condensed Consolidated Balance Sheets. Classification of such balances is based on the Company's ability and intent to repay such amounts over the subsequent twelve months, as well as reflects the Company's ability and intent to borrow for a period longer than a year. To the extent the Company expects to repay any amounts within the subsequent twelve months, the amounts are classified as short-term borrowings.
At June 30, 2015, the Company's 2.7% notes due October 15, 2015 are classified as long-term debt on the Condensed Consolidated Balance Sheet based on the Company's intent and ability to refinance this debt on a long-term basis.

10.  Employee Benefit Plans
 
 
Three Months Ended
 
 
June 30
Defined Benefit Pension Plans Net Periodic Pension Cost
 
U. S. Plans
 
International Plans
(In thousands)
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
722

 
$
558

 
$
453

 
$
411

Interest cost
 
3,089

 
3,217

 
9,140

 
11,012

Expected return on plan assets
 
(4,203
)
 
(4,196
)
 
(12,611
)
 
(12,708
)
Recognized prior service costs
 
20

 
22

 
48

 
47

Recognized loss
 
1,230

 
838

 
4,223

 
3,583

Settlement/curtailment losses
 

 

 

 
56

Defined benefit pension plans net periodic pension cost
 
$
858

 
$
439

 
$
1,253

 
$
2,401

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
 
June 30
Defined Benefit Pension Plans Net Periodic Pension Cost
 
U. S. Plans
 
International Plans
(In thousands)
 
2015
 
2014
 
2015
 
2014
Service costs
 
$
1,444

 
$
1,116

 
$
892

 
$
818

Interest cost
 
6,179

 
6,434

 
18,329

 
21,924

Expected return on plan assets
 
(8,406
)
 
(8,392
)
 
(25,285
)
 
(25,296
)
Recognized prior service costs
 
40

 
44

 
97

 
93

Recognized loss
 
2,459

 
1,676

 
8,457

 
7,136

Settlement/curtailment losses
 

 

 

 
56

Defined benefit pension plans net periodic pension cost
 
$
1,716

 
$
878

 
$
2,490

 
$
4,731


15


 
 
Three Months Ended
 
Six Months Ended
Company Contributions
 
June 30
 
June 30
(In thousands)
 
2015
 
2014
 
2015
 
2014
Defined benefit pension plans:
 
 

 
 

 
 
 
 
United States
 
$
592

 
$
582

 
$
1,274

 
$
1,148

International
 
4,165

 
4,316

 
20,231

 
21,737

Multiemployer pension plans
 
741

 
966

 
1,306

 
1,667

Defined contribution pension plans
 
2,817

 
2,930

 
6,265

 
6,999

The Company's estimate of expected contributions to be paid during the remainder of 2015 for the U.S. and international defined benefit plans are $1.2 million and $9.1 million, respectively.

11.     Income Taxes 

The income tax expense related to continuing operations for the three and six months ended June 30, 2015 was $7.1 million and $20.0 million, respectively, compared with $4.8 million and $10.2 million for the three and six months ended June 30, 2014, respectively.

An income tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, based on technical merits, including resolutions of any related appeals or litigation processes. The unrecognized income tax benefit at June 30, 2015 was $15.3 million, including interest and penalties.  Within the next twelve months, it is reasonably possible that up to $1.5 million of unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.


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 waste 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 Condensed Consolidated Balance Sheets at both June 30, 2015 and December 31, 2014 include accruals in Other current liabilities of $1.2 million for environmental matters.  The amounts charged against pre-tax income related to environmental matters total $0.3 million and $0.6 million for the three and six months ended June 30, 2015, respectively. The amounts charged against pre-tax income related to environmental matters totaled $0.7 million and $1.3 million for the three and six months ended June 30, 2014, respectively.

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.

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, the losing party at the collection action or court of appeals phase 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. A large number of the claims relate to value-added ("ICMS") services and social security ("INSS") tax disputes. The largest proportion of the assessed amounts relate to ICMS claims filed by the State Revenue Authorities from the State of São Paulo, Brazil (the "SPRA"), encompassing the period from January 2002 to May 2005.

16


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.  As of June 30, 2015, the principal amount of the tax assessment from the SPRA with regard to this case was approximately $2 million, with penalty, interest and fees assessed to date increasing such amount by an additional $22 million.  Any change in the aggregate amount since the Company’s last Annual Report on Form 10-K for the year ended December 31, 2014, as revised on Form 8-K filed on June 1, 2015, is due to an increase in assessed interest and statutorily mandated legal fees for the period as well as foreign currency translation.
Another ICMS tax case involving the SPRA refers to the tax period from January 2002 to December 2003, and is still pending at the administrative phase. The aggregate amount assessed by the tax authorities in August 2005 was $8.1 million (the amounts with regard to this claim are valued as of the date of the assessment since it has not yet reached the collection phase), composed of a principal amount of $1.9 million, with penalty and interest assessed through that date increasing such amount by an additional $6.2 million.  All such amounts include the effect of foreign currency translation.
The Company continues to believe it is not probable that it will incur a loss for these assessments by the SPRA. The Company also continues to believe that sufficient coverage for these claims exists as a result of the Company’s customer’s indemnification obligations and such customer’s pledge of assets in connection with the October 2009 notice, as required by Brazilian procedure.
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.
Brazilian Labor Disputes
The Company is subject to collective bargaining and individual labor claims in Brazil through the Harsco Metals & Minerals Segment which allege, among other things, the Company's failure to pay required amounts for overtime and vacation at certain sites. The Company is vigorously defending itself against these claims; however, litigation is inherently unpredictable, particularly in foreign jurisdictions. While the Company does not currently expect that the ultimate resolution of these claims will have a material adverse effect on the Company’s financial condition, results of operations or cash flows, it is not possible to predict the ultimate outcome of these labor-related disputes.

The Company is continuing to review all known labor claims and as of June 30, 2015 and December 31, 2014, the Company has established reserves of $7.9 million and $8.6 million, respectively, on the Company's Condensed Consolidated Balance Sheets for amounts considered to be probable and estimable. As the Company continues to evaluate these claims and takes actions to address them, the amount of established reserves may be impacted.

Customer Disputes
The Company, through its Harsco Metals & Minerals Segment, provides services through long-term service contracts on a number of sites worldwide. As previously disclosed, a subcontractor at the site of a large customer has filed for arbitration against the Company, claiming that it is owed monetary damages from the Company in connection with its processing certain materials. The Company disputes that it is responsible for such alleged damages and intends to vigorously defend itself against this claim. In addition, the Company has impleaded its customer - which the Company believes has responsibility for any damages - into its arbitration with the subcontractor. The Company has concluded that a loss contingency is neither probable nor estimable and, therefore has not made any provision for any potential loss in its condensed consolidated financial statements. Moreover, based on the information currently available to the Company, the Company does not expect that the ultimate resolution of this arbitration will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

The Company, through its Harsco Metals & Minerals Segment, may, in the normal course of business, become involved in commercial disputes with other subcontractors or customers. Although results of operations and cash flows for a given period could be adversely affected by a negative outcome in these or other lawsuits, claims and proceedings, management believes that the ultimate outcome of these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.


17


Other
The Company is named as one of many defendants (approximately 90 or more in most cases) in legal actions in the United States 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.

The Company believes that the claims against it are without merit. 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.
At June 30, 2015, there were 17,225 pending asbestos personal injury actions filed against the Company.  Of those actions, 16,899 were filed in the New York Supreme Court (New York County), 125 were filed in other New York State Supreme Court Counties and 201 were filed in courts located in other states.
The complaints in most of those actions generally follow a form that contains a standard damages demand of $20 million or $25 million, regardless of the individual plaintiff’s alleged medical condition, and without identifying any specific Company product.
At June 30, 2015, 16,772 of the actions filed in New York Supreme Court (New York County) were on the Deferred/Inactive Docket created by the 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. The remaining 127 cases in New York County are pending on the Active or In Extremis Docket created for plaintiffs who can demonstrate a malignant condition or physical impairment.
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 Company believes that a substantial portion of the costs and expenses of the asbestos actions will be paid by the Company’s insurers.
In view of the persistence of asbestos litigation in the United States, 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 June 30, 2015, the Company has obtained dismissal in 27,663 cases by stipulation or summary judgment prior to trial.
It is not possible to predict the ultimate outcome of asbestos-related actions in the United States 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.
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 condition, 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 is 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, to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as revised on Form 8-K filed on June 1, 2015, for additional information on Accrued Insurance and Loss Reserves.



18


13.  Reconciliation of Basic and Diluted Shares
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
(In thousands, except per share amounts)
 
2015
 
2014
 
2015
 
2014
Income (loss) from continuing operations attributable to Harsco Corporation common stockholders
 
$
6,302

 
$
(13,702
)
 
$
21,973

 
$
(3,088
)
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
 
80,221

 
80,885

 
80,230

 
80,850

Dilutive effect of stock-based compensation
 
197

 

 
155

 

Weighted-average shares outstanding - diluted
 
$
80,418

 
$
80,885

 
$
80,385

 
$
80,850

 
 
 
 
 
 
 
 
 
Earnings (loss) from continuing operations per common share, attributable to Harsco Corporation common stockholders:
Basic
 
$
0.08

 
$
(0.17
)
 
$
0.27

 
$
(0.04
)
 
 
 
 
 
 
 
 
 
Diluted
 
$
0.08

 
$
(0.17
)
 
$
0.27

 
$
(0.04
)

The following average outstanding stock-based compensation units were not included in the computation of diluted earnings (loss) per share because the effect was antidilutive:
 
 
Three Months Ended