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.