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Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2021

Harsco Rail Segment

In November 2021, the Company announced its intention to sell the Rail business. The former Harsco Rail Segment has historically been a separate reportable segment with primary operations in the United States, Europe and Asia Pacific.

The former Harsco Rail Segment's balance sheet positions as of December 31, 2021 and 2020 are presented as Assets held-for-sale and Liabilities of assets held-for-sale in the Consolidated Balance Sheets and are summarized as follows:


(in thousands)	December 31 2021		December 31 2020
Trade accounts receivable, net	$	33,689	$	52,077
Other receivables	4,740		3,045
Inventories	103,560		112,013
Current portion of contract assets	94,597		52,240
Other current assets	25,442		27,703
Property, plant and equipment, net	39,524		37,855
Right-of-use assets, net	3,108		4,354
Goodwill	13,026		13,026
Intangible assets, net	3,081		3,449
Deferred income tax assets	6,064		4,906
Other assets	6,432		6,316
Total Rail assets included in Assets held-for-sale	$	333,263	$	316,984

Accounts payable	$	46,076	$	53,937
Accrued compensation	2,171		1,503
Current portion of operating lease liabilities	1,619		1,745
Current portion of advances on contracts	62,401		37,462
Other current liabilities	49,732		33,280
Advances on contracts	—		44,731
Operating lease liabilities	1,775		2,734
Deferred tax liabilities	5,736		4,461
Other liabilities	982		925
Total Rail liabilities included in Liabilities of assets held-for-sale	$	170,492	$	180,778

The results of the former Harsco Rail 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, 2021, 2020, and 2019. Certain key selected financial information included in Income (loss) from discontinued operations, net of tax for the former Harsco Rail Segment is as follows:


	Years ended December 31
(In thousands)	2021		2020		2019
Amounts directly attributable to the former Harsco Rail Segment:
Service revenues	$	32,425	$	31,642	$	30,254
Product revenues	266,221		298,189		269,119
Cost of services sold	17,272		23,480		21,883
Cost of products sold	251,897		235,040		192,310
Income (loss) from discontinued businesses	(19,967)		23,096		25,406
Additional amounts allocated to the former Harsco Rail Segment:
Selling, general and administrative expenses (a)	$	178	$	—	$	—

(a) The Company has allocated directly attributable transaction costs to discontinued operations.

The Company has retained corporate overhead expenses previously allocated to the former Harsco Rail Segment of $4.2 million for each of the years ended December 31, 2021, 2020, and 2019 as part of Selling, general and administrative expenses on the Consolidated Statements of Operations.

The Company's former Harsco Rail segment is currently manufacturing highly-engineered equipment under large long-term fixed-price contracts with the SBB, the infrastructure manager for most of the railway in the U.K. ("Network Rail"), and the national railway company in Germany ("Deutsche Bahn"). Post-engineering, the Company has made significant progress in the development of the prototype/initial units for certain portions of these contracts during the fourth quarter of 2021, which has provided clarity in terms of material requirements and associated cost impacts. As a result, in the fourth quarter of 2021, the Company recognized estimated forward loss provisions related to these contracts of $33.4 million. The principal driver of the provisions was recent expected cost inflation for all contracts, including for vendors in Europe who perform the manufacturing and assembly of certain equipment under these contracts. In addition, the estimate for liquidated damages for delivery delays for the Network Rail contract was increased based on the current status of negotiations with the customer during the quarter, as well as delayed prototype build and the resulting delayed delivery schedule. The estimated forward loss provision represents the Company's best estimate based on currently available information. It is possible that the Company's overall estimate of costs to complete these contracts may increase, which would result in an additional estimated forward loss provision at such time.

The first contract with SBB is complete, and the second contract is 78% complete as of December 31, 2021. The contracts with Network Rail and Deutsche Bahn are 42% and 18% complete, respectively, as of December 31, 2021.

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


	Years Ended December 31
(In thousands)	2021		2020		2019
Non-cash operating items
Depreciation and amortization	$	4,329	$	5,450	$	4,876
Cash flows from investing activities
Purchases of property, plant and equipment	1,406		7,962		15,274

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


(In millions)	April 6 2020		Measurement Period Adjustments		Final Valuation
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, net	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:


(Dollars in millions)	Weighted-Average Amortization Period	April 6 2020		Measurement Period Adjustments		Final Valuation
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 years ended December 31, 2020 and 2019 included ESOL direct acquisition and integration costs of $49.0 million and $7.3 million, respectively, which are included in Selling, general and administrative expenses, within the Corporate function, in the Consolidated Statements of Operations. In addition to the acquisition and integration costs reflected in the Consolidated Statements of Operations, 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 Consolidated Balance Sheets.

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, soil and dredged materials, 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. At December 31, 2021 and 2020, the present value of the expected reimbursement is approximately $8 million and $11 million, respectively. 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:


(In millions)	June 28 2019		Measurement Period Adjustments		Final Valuation
Cash and cash equivalents	$	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, net	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	(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

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 valuation of identifiable intangible assets and amortization periods for Clean Earth:


(Dollars in millions)	Weighted-Average Amortization Period	June 28 2019		Measurement Period Adjustments		Final Valuation
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 (b)	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

(b) 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 included Clean Earth direct acquisition costs of $15.2 million, which are included in Selling, general and administrative expenses, within the Corporate function, in the Consolidated Statements of Operations. In addition to the acquisition costs reflected in the Consolidated Statements of Operations, 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 Consolidated Balance Sheets.

Harsco Industrial Segment

In May 2019, the Company announced its intent to divest the businesses that comprised the Harsco Industrial Segment; AXC, IKG and PK. These disposals represented a strategic shift and accelerated 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 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 IKG have been recorded in the Consolidated Statements of Operations as discontinued operations.

The Harsco Industrial Segment was historically 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, 2021, 2020, and 2019. 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 thousands)	2021		2020		2019
Amounts directly attributable to the former Harsco Industrial Segment:
Total revenues	$	—	$	10,203	$	306,972
Cost of products sold	—		8,082		224,811
Gain on sale from discontinued businesses	—		18,281		569,135
Income (loss) from discontinued businesses	(3,510)		(1,578)		27,823
Additional amounts allocated to the former Harsco Industrial Segment:
Selling, general and administrative expenses (c)	$	3,510	$	2,695	$	8,429
Interest expense (d)	—		—		11,237
Loss on early extinguishment of debt (e)	—		—		5,314

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

(d) The Company 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 were directly attributed with the mandatory repayment of certain debt resulting from the AXC disposal.

(e) The Company allocated the $5.3 million write-off of deferred financing costs to discontinued operations as it directly attributed to the mandatory repayment of certain debt resulting from the AXC disposal.

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