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DISCONTINUED OPERATIONS
6 Months Ended
Jun. 30, 2020
DISCONTINUED OPERATIONS  
DISCONTINUED OPERATIONS

4. DISCONTINUED OPERATIONS

On June 3, 2020, the Company effected the split-off of ChampionX through an offer to exchange (the “Exchange Offer”) all shares of ChampionX common stock owned by Ecolab for outstanding shares of Ecolab common stock. In the Exchange Offer, which was oversubscribed, the Company accepted approximately 5.0 million shares of Ecolab common stock in exchange for approximately 122.2 million shares of ChampionX common stock. In the Merger, each outstanding share of ChampionX common stock was converted into the right to receive one share of Apergy common stock, and ChampionX survived the Merger as a wholly owned subsidiary of ChampionX Corporation (f/k/a Apergy). In connection with and in accordance with the terms of the Transaction, prior to the consummation of the Exchange Offer and the Merger, ChampionX distributed $527.4 million in cash to Ecolab.

The following is a summary of the assets and liabilities transferred to ChampionX as part of the separation:

(millions)

Assets:

 

Cash and cash equivalent

 

$60.6

Current assets

 

810.5

Non-current assets

 

3,222.3

4,093.4

Liabilities:

Current liabilities

313.0

Non-current liabilities

293.7

606.7

Net assets distributed to ChampionX

$(3,486.7)

Fair value of shares exchanged

1,051.4

Cash received from ChampionX

527.4

Consideration received less net assets

(1,907.9)

ChampionX cumulative translation adjustment ("CTA") write-off

(229.9)

Loss on separation

$(2,137.8)

The Company accounted for this transaction as a sale and recognized a loss based on ChampionX net assets exceeding the effective proceeds.

The ChampionX business, as discussed in Note 1, met the criteria to be reported as discontinued operations because it is a strategic shift in business that has a major effect on the Company’s operations and financial results. Therefore, the results of discontinued operations for the second quarter and first six months ended June 30, 2020 and 2019 include the historical results of ChampionX prior to separation.

Summarized results of the Company’s discontinued operations are as follows:

Second Quarter Ended

Six Months Ended 

June 30

June 30

(millions)

2020

    

2019

    

2020

    

2019

Product and equipment sales

$352.9

$532.1

$858.9

$1,058.6

Service and lease sales

44.8

58.1

99.6

112.3

Net sales

397.7

590.2

958.5

1,170.9

Product and equipment cost of sales

270.5

383.7

621.7

753.2

Service and lease cost of sales

34.9

44.1

80.4

88.8

Cost of sales (including special charges)

305.4

427.8

702.1

842.0

Selling, general and administrative expenses

74.0

102.7

180.5

214.8

Special (gains) and charges

2,185.2

25.6

2,221.7

26.4

Operating (loss) income

(2,166.9)

34.1

 

(2,145.8)

87.7

Other (income) expense

0.1

-

0.3

-

Interest expense (income), net

0.3

0.1

0.2

0.3

(Loss) income before income taxes

(2,167.3)

34.0

 

(2,146.3)

87.4

Provision for income taxes

(3.1)

9.1

24.0

17.7

Net (loss) income including noncontrolling interest

(2,164.2)

24.9

 

(2,170.3)

69.7

Net (loss) income attributable to noncontrolling interest

(0.3)

(0.3)

2.2

(0.4)

Net (loss) income from discontinued operations, net of tax

$(2,163.9)

$25.2

$(2,172.5)

$70.1

Special (gains) and charges of $2,186.1 million and $2,222.7 million in the second quarter and first six months of 2020, respectively primarily relate to the loss on separation, transaction fees, and other professional fees incurred to support the Transaction.

Special (gains) and charges of $25.6 million and $26.4 million in the second quarter and first six months of 2019, respectively, relate to professional fees incurred to support the Transaction and restructuring charges specifically related to the ChampionX business.

Assets and liabilities of discontinued operations are summarized below:

December 31

(millions)

    

2019

ASSETS

Current assets

Cash and cash equivalents

$67.6

Accounts receivable, net

 

414.5

Inventories

 

424.0

Other current assets

44.7

Total current assets

 

950.8

Property, plant and equipment, net

 

726.6

Goodwill

 

1,682.6

Other intangible assets, net

 

745.0

Operating lease assets

110.8

Other assets

67.8

Total assets

$4,283.6

LIABILITIES AND EQUITY

Current liabilities

Short-term debt

$0.1

Accounts payable

 

209.0

Compensation and benefits

 

33.8

Income taxes

 

5.9

Other current liabilities

112.7

Total current liabilities

 

361.5

Long-term debt

 

0.4

Postretirement health care and pension benefits

 

3.6

Deferred income taxes

203.1

Operating lease liabilities

79.2

Other liabilities

15.8

Total liabilities

 

$663.6

As of June 30, 2020, there were no assets or liabilities classified as discontinued operations.

In connection with the Transaction, the Company entered into agreements with ChampionX and Apergy to effect the separation and to provide a framework for the relationship following the separation, which included a Separation and Distribution Agreement, an Intellectual Property Matters Agreement, an Employee Matters Agreement, a Transition Services Agreement, and a Tax Matters Agreement. Transition services primarily involve the Company providing certain services to ChampionX related to general and administrative services for terms of up to 18 months following the separation. The amounts billed for transition services provided under the above agreements were not material to the Company’s results of operations.

The Company also entered into a Master Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales, while purchases from ChampionX are recorded in inventory. Sales of product to ChampionX post-separation for both the second quarter and first six months of 2020 were $12.3 million.