XML 35 R11.htm IDEA: XBRL DOCUMENT v3.20.1
Acquisitions and Dispositions
 3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Acquisitions and Dispositions Acquisitions and Dispositions

Clean Earth
On June 28, 2019 the Company acquired 100% of the outstanding stock of CEHI Acquisition Corporation and Subsidiaries ("Clean Earth"), one of the largest U.S. providers of specialty waste processing and beneficial reuse solutions for hazardous wastes, contaminated materials and dredged volumes, for an enterprise valuation of approximately $625 million on a cash free, debt free basis, subject to normal working capital adjustments. The Company transferred approximately $628 million of cash consideration and agreed to reimburse the sellers for any usage of assumed net operating losses in a post-closing period for up to five years, the present value of which is estimated at approximately $8 million.

The fair value recorded for the assets acquired and liabilities assumed for Clean Earth is as follows:    
 
 
Preliminary Valuation
(In millions)
 

June 28,
2019
 
Measurement Period Adjustments (a)
 
March 31
2020
Cash and cash equivalents (b)
 
$
42.8

 
$
(39.2
)
 
$
3.6

Trade accounts receivable, net
 
63.7

 
(1.2
)
 
62.5

Other receivables
 
0.8

 
1.3

 
2.1

Other current assets
 
8.7

 
(1.4
)
 
7.3

Property, plant and equipment
 
75.6

 
1.6

 
77.2

Right-of-use assets
 
14.4

 
11.4

 
25.8

Goodwill
 
313.8

 
16.3

 
330.1

Intangible assets
 
261.1

 
(18.9
)
 
242.2

Other assets
 
4.0

 
(2.8
)
 
1.2

Accounts payable
 
(23.0
)
 
(0.1
)
 
(23.1
)
Acquisition consideration payable (b)
 
(39.2
)
 
39.2

 
—

Other current liabilities
 
(18.0
)
 
(1.7
)
 
(19.7
)
Net deferred taxes liabilities
 
(51.2
)
 
5.8

 
(45.4
)
Operating lease liabilities
 
(11.1
)
 
(8.4
)
 
(19.5
)
Other liabilities
 
(6.5
)
 
(2.1
)
 
(8.6
)
Total identifiable net assets of Clean Earth
 
$
635.9

 
$
(0.2
)
 
$
635.7

(a)
The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
(b)
Acquisition consideration payable represents a portion of the cash consideration not paid out until July 2019.

The goodwill is attributable to strategic benefits, including enhanced operational and financial scale, as well as product and market diversification that the Company expects to realize. The Company expects $16.3 million of goodwill to be deductible for income tax purposes through 2033.

The following table details the preliminary valuation of identifiable intangible assets and amortization periods for Clean Earth:
 
 
 
 
Preliminary Valuation
(Dollars in millions)
 
Weighted-Average Amortization Period
 
Preliminary
 Valuation
June 28, 2019
 
Measurement Period Adjustments (c)
 
March 31
2020
Permits
 
18 years
 
$
176.1

 
$
(6.0
)
 
$
170.1

Customer relationships
 
8 years
 
33.4

 
(12.9
)
 
20.5

Air rights
 
Usage based (d)
 
25.6

 
—

 
25.6

Trade names
 
12 years
 
26.0

 
—

 
26.0

Total identifiable intangible assets of Clean Earth
 
 
 
$
261.1

 
$
(18.9
)
 
$
242.2


(c)
The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
(d)
The Company estimates that based on current usage that the expected useful life would be 27 years.

The Company valued the identifiable intangible assets using an income-based approach that utilized either the multi-period excess earnings method or the relief from royalty method. The purchase price allocation for Clean Earth is not final and the fair value of intangible assets and goodwill may vary from those reflected in the Company's condensed consolidated financial statements at March 31, 2020.

The three months ended March 31, 2020 and 2019 include Clean Earth direct acquisition costs of $0.1 million and $0.6 million, respectively, which are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations.

The pro forma information below gives effect to the Clean Earth acquisition as if it had been completed on January 1, 2018. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisition been completed on the above date, nor is it necessarily indicative of future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition and does not reflect the additional revenue opportunities following the acquisition. The pro forma information below includes adjustments to reflect additional depreciation and amortization expense based on the estimated fair value and useful lives of intangible assets and fixed assets acquired; includes additional interest expense of approximately $9.0 million three months ended March 31, 2019 on the acquisition related borrowings used to finance the Clean Earth acquisition and excludes certain directly attributable transaction costs and historic Clean Earth interest expense. These pro forma adjustments are subject to change as additional analysis is performed. The values assigned to the assets acquired and liabilities assumed are based on preliminary valuations and are subject to change as the Company obtains additional information during the measurement period.
 
 
Three Months Ended
 
 
March 31
(In millions)
 
2019
Pro forma revenues
 
$
393.5

Pro forma net income (including discontinued operations)
 
15.6



Harsco Industrial Segment
In January 2020 the Company sold IKG for $85 million, including a note receivable with a face value of $40.0 million (initial fair value $34.3 million), subject to post-closing adjustments, and recognized a gain on the sale of $18.5 million pre-tax (or approximately $9 million after-tax). Together with the 2019 sales of AXC and PK, this completes the divestiture of the former Harsco Industrial Segment originally announced in May 2019. These disposals represent a strategic shift and accelerated the transformation of the Company's portfolio of businesses into a leading provider of environmental solutions and services. See Note 4, Accounts Receivable and Note Receivable, for additional information related to the note receivable.
 
 
 
 
 

The Harsco Industrial Segment has historically been a separate reportable segment with primary operations in North America and Latin America. In accordance with U.S. GAAP, the results of the former Harsco Industrial Segment are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the three months ended March 31, 2020 and 2019.

Certain key selected financial information included in net income from discontinued operations for the former Harsco Industrial Segment is as follows:
 
 
Three Months Ended
 
 
March 31
(In millions)
 
2020
 
2019
Amounts directly attributable to the former Harsco Industrial Segment:
  Total revenues
 
$
10,203

 
$
117,386

  Cost of products sold
 
8,082

 
87,695

  Income from discontinued business
 
218

 
14,192

Additional amounts allocated to the former Harsco Industrial Segment:
  Selling, general and administrative expenses (e)
 
$
1,266

 
$
—

  Interest expense (f)
 
—

 
4,232

(e) The Company has allocated directly attributable transaction costs to discontinued operations.
(f) The Company has allocated interest expense, including a portion of the amount reclassified into income for the Company's interest rate swaps and amortization of deferred financing costs resulting from the AXC disposal, as part of discontinued operations.

The Company has retained corporate overhead expenses previously allocated to the Harsco Industrial Segment of $1.4 million for the three months ended March 31, 2019, as part of Selling, general and administrative expenses, on the Company's Condensed Consolidated Statements of Operations.

The following is selected financial information included on the Company's Condensed Consolidated Statements of Cash Flows attributable to the former Harsco Industrial Segment:
 
 
Three Months Ended
 
 
March 31
(In millions)
 
2020
 
2019
Non-cash operating items
 
 
 
 
Depreciation and amortization
 
$
—

 
$
2,025

Cash flows from investing activities
 
 
 
 
Purchases of property, plant and equipment
 
106

 
2,175