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Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2020

ESOL

On April 6, 2020 the Company completed the previously announced acquisition of 100% of ESOL, an established waste transportation, processing and services provider with a comprehensive portfolio of disposal solutions for customers primarily across the industrial, retail and healthcare markets from Stericycle, Inc. for $429.0 million of cash consideration, inclusive of post-closing adjustments. In addition, as part of the acquisition, the Company entered into a non-compete agreement with Stericycle, Inc. Concurrent to the ESOL acquisition, the Company entered into an agreement with Stericycle Inc. related to certain Stericycle, Inc. customers who receive services from both ESOL and other Stericycle, Inc. businesses under a single contractual arrangement. The revenue pertaining to services rendered to these customers are invoiced centrally through Stericycle, Inc. billing systems and ESOL's portion of the revenue, less a management fee, is then distributed to the Company.

The preliminary fair value recorded for the assets acquired and liabilities assumed for ESOL is as follows:


	Preliminary Valuation
(In millions)	April 6 2020		Measurement Period Adjustments		December 31 2020
Cash and cash equivalents	$	0.4	$	—	$	0.4
Trade accounts receivable	124.1		(1.2)		122.9
Inventory	5.0		—		5.0
Other current assets	0.7		(0.4)		0.3
Property, plant and equipment	105.3		(3.1)		102.2
Right-of-use assets	56.0		—		56.0
Goodwill	152.0		0.1		152.1
Intangible assets	161.0		—		161.0
Other assets	0.2		—		0.2
Accounts payable	(48.6)		(1.5)		(50.1)
Accrued expenses	(17.5)		(2.0)		(19.5)
Current portion of operating lease liabilities	(16.6)		—		(16.6)
Other current liabilities	(6.4)		—		(6.4)
Environmental liabilities	(24.4)		—		(24.4)
Deferred income taxes	(15.5)		(1.7)		(17.2)
Operating lease liabilities	(39.4)		—		(39.4)
Total identifiable net assets of ESOL	436.3		(9.8)		426.5
Non-compete agreement	2.5		—		2.5
Total identifiable net assets of ESOL, including non-compete agreement	$	438.8	$	(9.8)	$	429.0

The purchase price allocation presented above is preliminary. We continue to refine our purchase price allocation, principally income taxes and goodwill, and expect to finalize during the first quarter of 2021.

The goodwill is primarily attributed to expected operational efficiencies and synergies from the expanded geographical scale of hazardous waste processing facilities resulting from combining the ESOL business with the existing Clean Earth business of the Company, as well as the value associated with the assembled workforce of ESOL. The Company expects $36.8 million of goodwill to be deductible for income tax purposes through 2030.

The following table details the preliminary valuation of identifiable intangible assets and amortization periods for ESOL and the non-compete agreement entered into by the Company upon acquisition of ESOL:


		Preliminary Valuation
(Dollars in millions)	Weighted-Average Amortization Period	April 6 2020		Measurement Period Adjustments		December 31 2020
Permits and rights	22 years	$	138.0	$	—	$	138.0
Customer relationships	10 years	23.0		—		23.0
Total identifiable intangible assets of ESOL		161.0		—		161.0
Non-compete agreement	4 years	2.5		—		2.5
Total identifiable intangible assets acquired		$	163.5	$	—	$	163.5

The Company valued the identifiable intangible assets using methodologies under the income approach including the multi-period excess earnings method, the distributor method, and the with-and-without method. The purchase price allocation for ESOL is not final and the fair value of intangible assets and goodwill may vary from those reflected in the Company's consolidated financial statements at December 31, 2020.

ESOL contributed revenue of $368.0 million and operating income of $7.4 million for the twelve months ended December 31, 2020. The operations of ESOL have been combined and included as part of the Harsco Clean Earth Segment.

The year ended December 31, 2020 and 2019 include ESOL direct acquisition and integration costs of $49.0 million and $7.3 million, respectively, which are included in the Selling, general and administrative expenses, within the Corporate function, in the Company's Consolidated Statements of Operations. In addition to the acquisition and integration costs reflected

in the Company's Consolidated Statements of Operations, the debt issuance costs associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, as Long-term debt on the Company's Consolidated Balance Sheets. See Note 8, Debt and Credit Agreements, for additional information.

Clean Earth

On June 28, 2019, the Company acquired 100% of the outstanding stock of 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. During the year ended December 31, 2020, the Company expensed an additional $2.3 million related to the expected reimbursement of these net operating losses of which the present value is now estimated at approximately $11 million. See Footnote 18, Other (Income) Expenses, Net, for additional details.

The fair value recorded for the assets acquired and liabilities assumed for Clean Earth is as follows:


	Final
(In millions)	June 28, 2019		Measurement Period Adjustments (a)		December 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		1.4		77.0
Right-of-use assets	14.4		11.4		25.8
Goodwill	313.8		16.8		330.6
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)		5.5		(45.7)
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:


		Final
(Dollars in millions)	Weighted-Average Amortization Period	Preliminary Valuation June 28, 2019		Measurement Period Adjustments (c)		December 31 2020
Permits	18 years	$	176.1	$	(6.0)	$	170.1
Customer relationships and backlog	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 year ended December 31, 2019 include Clean Earth direct acquisition costs of $15.2 million which are included in Selling, general and administrative expenses, within the Corporate function, in the Company’s Consolidated Statements of Operations. In addition to the acquisition costs reflected in the Company’s Consolidated Statements of Operations, the debt issuance costs associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, as Long-term debt on the Company’s Consolidated Balance Sheets. See Note 8, Debt and Credit Agreements, for additional information.

Included in the liabilities acquired was a contingent consideration liability resulting from a prior Clean Earth acquisition. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized on the Consolidated Statements of Operations during the period in which the change occurs. The following table reflects the changes in the fair value of contingent consideration which occurred since acquisition:


(In thousands)	2020		June 28, 2019 through December 31, 2019
Balance at beginning of year	$	3,400	$	3,100
Payment	(2,342)		(525)
Fair value adjustment	112		825
Balance at end of year	$	1,170	$	3,400

Pro forma financial information

The pro forma information below gives effect to the Clean Earth acquisition as if it had been completed on January 1, 2018 and the ESOL acquisition as if it had been completed on January 1, 2019. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisition been completed on the above dates, 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 $4.7 million for the year ended December 31, 2020 and approximately $39.9 million for the year ended December 31, 2019 on the acquisitions related borrowings used to finance the acquisitions and excludes certain directly attributable acquisition and integration costs and historic 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, for the ESOL acquisition, and are subject to change as the Company obtains additional information during the measurement period. In addition, the historical ESOL results include $8.9 million and $35.7 million for the years ended December 31, 2020 and 2019, respectively, of corporate expenses charged to ESOL from Stericycle, Inc.


	Year Ended December 31 (unaudited)
(In millions)	2020		2019
Pro forma revenues	$	1,994.5	$	2,185.2

Pro forma net income (including discontinued operations) (e)	0.1		471.3

(e) Pro forma net income for 2020 includes the after tax gains on the sale of IKG of approximately $9 million, and the 2019 includes the after-tax gains on the sale of AXC and PK of approximately $454 million.

Altek

In May 2018, the Company acquired Altek, a U.K.-based manufacturer of market-leading products that enable aluminum producers and recyclers to manage and efficiently extract value from critical byproduct streams, reduce byproduct generation and improve operating productivity. The Company acquired Altek, on a debt and cash free basis, for a purchase price of £45 million (approximately $60 million) in cash, with the potential for up to £25 million (approximately $33 million) in additional contingent consideration through 2021 subject to the future financial performance of Altek. The cash consideration transferred included payments of $57.4 million, inclusive of normal working capital adjustments. In addition, the Company recognized contingent consideration with an initial fair value of $12.1 million as of the acquisition date. Altek's revenues and operating results have been included in the results of the Harsco Environmental Segment. Inclusion of pro forma financial information for this transaction is not necessary as the acquisition is immaterial to the Company's results of operations.

The fair value recorded for the assets acquired and liabilities assumed for Altek is as follows:


		Final Valuation
(In millions)		June 30 2018		Measurement Period Adjustments (f)		March 31 2019
Cash and cash equivalents		$	1.7	$	—	$	1.7
Net working capital		(1.5)		0.2		(1.3)
Property, plant and equipment		3.3		—		3.3
Intangible assets	Just	52.5		0.2		52.7
Goodwill		20.9		1.6		22.5
Net deferred tax liabilities		(8.5)		—		(8.5)
Other liabilities		(0.3)		—		(0.3)
Total identifiable net assets of Altek		$	68.1	$	2.0	$	70.1

(f) The measurement period adjustments did not have a material impact on the Company's previously reported operating results.

The initial fair value of contingent consideration was estimated using a probability simulation model which uses assumptions and estimates to forecast a range of outcomes for the contingent consideration. Key inputs to the model include projected earnings before interest, tax, depreciation and amortization; the discount rate; the projection risk neutralization rate; and volatility, which are Level 3 data. The Company will continue to assess these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized on the Consolidated Statements of Operations during the period in which the change occurs. The following table reflects the changes in the fair value of contingent consideration:


(In thousands)	2019		2018
Balance at beginning of year	$	8,420	$	—
Recognition of contingent consideration	—		10,097
Measurement period adjustment	—		1,958
Fair value adjustment (g)	(8,506)		(2,939)
Foreign currency translation	86		(696)
Balance at end of year	$	—	$	8,420

(g) The fair value adjustment resulted from the decreased probability of Altek achieving cumulative financial and non-financial performance goals within the required time frame. This amount is recorded in Other expenses, net on the Consolidated Statements of Operations.

Harsco Industrial Segment

In May 2019, the Company announced the intent to divest the businesses that comprised the Harsco Industrial Segment; AXC, IKG and PK. These disposals represent a strategic shift and accelerate the transformation of the Company's portfolio of businesses into a leading provider of environmental solutions and services. In July 2019, the Company sold AXC for $600 million in cash and recognized a gain on sale of $527.9 million pre-tax (or approximately $421 million after-tax). In November 2019, the Company sold PK for approximately $60 million in cash and recognized a gain on sale of $41.2 million pre-tax (or approximately $33 million after-tax). In January 2020, the Company sold IKG for $85.0 million, including a note receivable

with a face value of $40.0 million (initial fair value $34.3 million) and recognized an $18.4 million pre-tax gain on sale (or approximately $9 million after-tax). In 2019 the gains on the sales of AXC and PK and in 2020 the gain on the sale of PK have been recorded in the Consolidated Statements of Operations as discontinued operations.

The former Harsco Industrial Segment's balance sheet positions of IKG as of December 31, 2019 are presented as Assets held-for-sale and Liabilities of assets held-for-sale in the Company’s Consolidated Balance Sheets and are summarized as follows:


(in thousands)	December 31, 2019
Trade accounts receivable, net	$	10,982
Other receivables	78
Inventories	9,838

Other current assets	655
Property, plant and equipment, net	20,703
Right-of-use assets, net	11,230



Other assets	96
Total assets	$	53,582

Accounts payable	$	5,060
Accrued compensation	2,324
Current portion of advances on contracts	1,168
Current portion of operating lease liabilities	1,575
Other current liabilities	1,218

Operating lease liabilities	9,837
Other liabilities	2,314
Total liabilities	$	23,496

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 years ended December 31, 2020, 2019, and 2018. Certain key selected financial information included in net income from discontinued operations for the former Harsco Industrial Segment is as follows:


	Years ended December 31
(In millions)	2020		2019		2018
Amounts directly attributable to the former Harsco Industrial Segment:
Total revenues	$	10,203	$	306,972	$	374,707
Cost of products sold	8,082		224,811		276,198
Gain on sale from discontinued businesses	18,281		569,135		—
Income (loss) from discontinued business	(1,578)		27,823		43,593
Additional amounts allocated to the former Harsco Industrial Segment:
Selling, general and administrative expenses (h)	$	2,695	$	8,429	$	—
Interest expense (i)	—		11,237		16,613
Loss on early extinguishment of debt (j)	—		5,314		—

(h) The Company has allocated directly attributable transaction costs to discontinued operations. In addition, this caption includes costs directly attributable to retained contingent liabilities of the Harsco Industrial Segment.

(i) The Company has allocated interest expense, including a portion of the amount reclassified into income for the Company's interest rate swaps, amortization of deferred financing costs, and $2.7 million related to interest rate swap terminations which occurred during the year ended December 31, 2019, all of which were directly attributed with the mandatory repayment of the Company's Term Loan Facility, resulting from the AXC disposal, as part of discontinued operations.

(j) The Company has allocated the $5.3 million write-off of deferred financing costs to discontinued operations as it is directly attributed to the mandatory repayment of the Term Loan Facility that resulted from the AXC disposal.

The Company has retained corporate overhead expenses previously allocated to the Harsco Industrial Segment of $4.0 million and $5.6 million in 2019, and 2018, respectively, as part of Selling, general and administrative expenses on the Consolidated Statements of Operations.

The following is selected financial information included on the Consolidated Statements of Cash Flows attributable to the former Harsco Industrial Segment:


	Years Ended December 31
(In millions)	2020		2019		2018
Non-cash operating items
Depreciation and amortization	$	—	$	3,301	$	7,729
Cash flows from investing activities
Purchases of property, plant and equipment	106		8,372		7,561