Acquisitions and Dispositions

3 Months Ended

Mar. 31, 2021

ESOL

On April 6, 2020 the Company completed the 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.

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


	Final
(In millions)	April 6 2020		Measurement Period Adjustments		March 31 2021
Cash and cash equivalents	$	0.4	$	—	$	0.4
Trade accounts receivable	124.1		(1.5)		122.6
Inventory	5.0		—		5.0
Other current assets	0.7		(0.7)		—
Property, plant and equipment	105.3		(3.9)		101.4
Right-of-use assets	56.0		—		56.0
Goodwill	152.0		1.3		153.3
Intangible assets	161.0		—		161.0
Other assets	0.2		—		0.2
Accounts payable	(48.6)		(1.5)		(50.1)
Accrued expenses	(17.5)		(1.8)		(19.3)
Current portion of operating lease liabilities	(16.6)		—		(16.6)
Other current liabilities	(6.4)		(0.2)		(6.6)
Environmental liabilities	(24.4)		—		(24.4)
Deferred income taxes	(15.5)		(1.5)		(17.0)
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 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 valuation of identifiable intangible assets and amortization periods for ESOL and the non-compete agreement entered into by the Company upon acquisition of ESOL:


		Final
(Dollars in millions)	Weighted-Average Amortization Period	April 6 2020		Measurement Period Adjustments		March 31 2021
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.

ESOL contributed revenue of $134.2 million and operating income of $7.0 million for the three months ended March 31, 2021. The operations of ESOL have been combined and included as part of the Harsco Clean Earth Segment.

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.

Pro forma financial information

The pro forma information below gives effect to 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 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 the adjustments necessary 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 three months ended March 31, 2020 on the acquisition related borrowings used to finance the acquisition and excludes certain directly attributable acquisition and integration costs. In addition, the historical ESOL results include $8.9 million for the three months ended March 31, 2020 of corporate expenses charged to ESOL from Stericycle.


	Three Months Ended
	March 31
(In millions)	2020
Pro forma revenues	$	529.5

Pro forma net income attributed to Harsco Corporation (including discontinued operations) (a)	0.9

(a) Pro forma net income includes the after tax gain on the sale of IKG of approximately $9 million.

Harsco Industrial Segment

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 $18.5 million pre-tax gain on sale (or approximately $9 million after-tax). Together with the 2019 sales of AXC and PK, this completed the divestiture of the former Harsco Industrial Segment originally announced in May 2019. 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.

Certain key selected financial information included in net income (loss) from discontinued operations for the former Harsco Industrial Segment is as follows:


	Three Months Ended
	March 31
(In millions)	2021		2020
Amounts for the former Harsco Industrial Segment:
Total revenues	$	—	$	10,203
Cost of products sold	—		8,082

Income (loss) from discontinued business	—		218
Additional amounts allocated to the former Harsco Industrial Segment:
Selling, general and administrative expenses (b)	$	1,046	$	1,266

(b) 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.